PROPERTY TAX ADJUSTMENT:

Property Tax Adjustment:  The State of Vermont offers a tax credit to qualified homeowners which reduces the annual property tax amount due on a person’s primary residence. There are various eligibility requirements one must meet in order to qualify for this credit, including a maximum household income.  Vermont residents who own and occupy a property as their primary residence on April 1st must file a Homestead Declaration, Form HS-122, by April 15th of each year in order for their property taxes to be assessed at the Homestead rate and to qualify for the tax credit. If a homeowner receives a credit, they are notified by the State and the credit appears on their property tax bill which is released sometime after July 1 of each year. The State notification shows the amount the credit may be, however if the party owes certain unpaid tax obligations to the State, child support or other specific items, this amount can be held by the State to satisfy those items.

Typically, when a person who receives a property tax credit sells their house, the credit is prorated at closing so that the new owner of the property pays the full amount of property taxes due and does not receive the benefit of the prior owner’s tax credit. This can be modified in the written contract, but if the contract is silent the law says the tax credit belongs to the Seller and must be paid.  Whoever owns the property on April 1 of each year is the owner of the property for tax purposes until April 1 of the following year.  Homeowners who sell their home prior to April 1, but after they filed their homestead declaration for the year, will need to rescind their filing as they will not be the homeowner on April 1.

There is a three-month window of time between April 1 and when the new property tax bills are released. During this time, we do not know the amount of tax credit the seller will receive.  As such, real estate attorneys need to estimate the tax credit a qualifying homeowner expects to receive on the upcoming tax bill.  The easiest way to do this is to have the Sellers complete and provide their attorney with a 2025 Property Tax Credit Calculator Adjustments, which they can do at https://tax.vermont.gov/document/2025-property-tax-credit-calculator.  As these amounts change from year to year, and the Buyers will need to have additional money available at closing, the earlier that this amount can be disclosed to the other side, the less likely that there will be a delay due to a surprise prebate amount.  Based on this amount, the estimated tax credit is collected from the purchasers and held in escrow until the tax bills are released and the closing attorney can confirm the tax credit amount, at which time the money is released to the seller. In addition, if the seller does not produce a worksheet they may be asked to waive the credit due to them by signing a waiver at the closing table.  After closing, it is difficult to get Buyers to pay any credit that should have paid at the closing, so it is important to handle this at closing for the convenience of both parties.  You need to make sure you understand this and cover this with your Buyer or Seller.  If you have any questions, we are happy to help and you can contact any one of our attorneys.