New Cap on Capital Gains ExclusionAuthor:VT Department of Taxes | | Date:June 27, 2019
New cap on capital gains exclusion
The existing 40% exclusion for capital gains will be capped at $350,000 under Act 71, Sec. 1, effective July 1, 2019. This means that any gain above $875,000 will be taxed at standard income tax rates. Taxpayers who are considering a sales of a large capital asset may want to consult a tax preparer for guidance as soon as possible.
Legislative Changes Will Impact the Sale of Capital Assets and Real Estate
In late May, the Vermont legislature made two significant changes for 2019 which will affect the sale of capital assets and real estate. Both changes were in Act 71 and will take effect July 1, 2019.
The first change is in the treatment of capital gains as it relates to a taxpayer’s personal income taxes. Under current law there is a 40 percent exclusion for capital gains which will be capped at $350,000 as of July 1. This means that any gain above $875,000 will be taxed at standard income tax rates beginning on July 1, 2019.
“If you are currently considering the sale of a large capital asset such as a business or investment property that you have owned for more than three years, the Department of Taxes suggests you contact your tax preparer for guidance immediately,” said Acting Tax Commissioner Craig Bolio.
The second change is related to the transfer of real estate or real property in Vermont. Under current law, the Property Transfer Tax only applies to the transfer of ownership of real property by deed.
Effective July 1, the purchase of a controlling interest in an entity holding title to real property in the state of Vermont will trigger a property transfer tax liability. Generally, a controlling interest means 50 percent or more of stock, capital, profits or beneficial interest in an entity. The tax due from the purchaser is calculated based on the fair market value of the property.
The department will issue additional guidance and links on its website as soon as possible. Taxpayers who have questions about these changes should contact their tax preparers. A tax preparer who is most familiar with the taxpayer’s circumstances will be able to provide the most relevant and beneficial guidance.