Vermont Form RW-171 and the Withholding Certificate for Exchanges

The statute makes the buyer withhold 2.5% of the price, not of the gain

32 V.S.A. section 5847 requires the transferee of Vermont real property from a nonresident to withhold "a withholding tax equal to 2 1/2 percent of the consideration paid for the transfer" and remit it within 30 days. The base is the price, so a seller with a large mortgage payoff or a small gain can see withholding that exceeds the tax actually owed.

The Department's real estate withholding page defines a nonresident individual as one "domiciled outside of the State of Vermont at the time of closing." The RW-171 instructions extend that to entities: a partnership, LLC or S corporation is nonresident "if the controlling interest is held by nonresidents," and an out-of-state C corporation is nonresident unless its principal place of business is in Vermont.

The statute lists three situations where no withholding is needed: the seller certifies Vermont residency, the Commissioner issues a certificate that no tax is due or that liability has been satisfied, or the transfer is a foreclosure or deed in lieu with no added consideration. An exchange is not on that list by name, which is why the certificate is the route.

Form RW-171 is the buyer's return, and the certificate is attached to it

Form RW-171 is titled "To be completed by the buyer or other transferee required to withhold." Line 12 is the total consideration, line 13 has two boxes, (A) 2.5% of sales price and (B) "less than 2.5%. Attach withholding certificate and enter certificate number," and line 14 is the amount withheld. A separate Schedule A is completed for each seller receiving proceeds, with that seller's share and the amount withheld on their behalf.

The form and Schedule A are filed with the Department in Montpelier, not with the town clerk, within 30 days after the date of transfer. The instructions warn that the return will be returned to the buyer if the Schedule A's are missing, which delays your credit, and that "if the buyer fails to withhold, the buyer will be personally liable for the amount required to be withheld."

The Department's fact sheet FS-1177, revised June 2026, adds that both the seller and the buyer are responsible for obtaining copies of the RW-171 and Schedule A from the closing attorney, because "the Department will not provide copies." Keep them with the exchange file and the settlement statement, which is read line by line on reading a settlement statement for a 1031 exchange.

The Commissioner's Certificate is where the exchange is claimed

The Commissioner's Certificate page lists seven reasons a seller may request a certificate that reduces or exempts withholding. Among them: loss on the sale, withholding on gain would be lower than 2.5% of the price, a section 121 exclusion, "transaction is part of a section 1031 exchange agreement," resident sellers, a tax-exempt seller, and any other reason the gain is not recognized federally.

Every request is submitted online: "All certificate requests must be submitted online through myVTax," starting from the Commissioner's Certificate link in the Property Owners section. FS-1177 says the proof of basis required for a certificate application is the same documentation needed when rental or business property is sold, which means the acquisition closing statement, the list of improvements and the depreciation schedule.

Vermont does not publish a fixed number of days before closing for the request, unlike the twenty-one-day states listed on exemption filing deadlines by state. Apply as soon as the exchange agreement is signed, because the certificate has to be in the buyer's hands at the table for box B to be checked.

Boot, partial relief and a failed exchange

The certificate can prescribe a reduced amount rather than zero. The statute lets the Commissioner set a lower figure "if the Commissioner determines that such reduced amount will not jeopardize the collection of the tax," and the RW-171 instructions list reduced withholding where 2.5% of the price exceeds the seller's maximum liability. If you intend to take cash out of the exchange, say so in the request so the certificate covers the recognized gain on that boot; see what boot is in a 1031 exchange.

Hypothetical: a nonresident sells a Stowe rental for $800,000 and will keep $50,000 outside the exchange. With no certificate the buyer holds back $20,000. With a certificate the Department can limit withholding to the tax on the gain attributable to the $50,000, a fraction of that. Run your own numbers with your CPA.

If the exchange fails after closing, the state has already given up its withholding, and the gain is reported on the nonresident Vermont return for the year of sale. FS-1177 notes that Vermont requires depreciation to be added back on rental property and will adjust refunds where it has not been. The federal side of a collapsed exchange is on what happens when a 1031 exchange fails.

Two other Vermont taxes sit at the same table

The withholding certificate has nothing to do with Vermont's property transfer tax, which the buyer pays on the deed. The Department's property transfer tax page lists a general rate of 1.25%, a 3.40% rate on year-round homes that are not a principal residence or long-term rental, and a 0.22% clean water surcharge. A buyer's exchange does not reduce it.

Land purchased and subdivided by the seller fewer than six years before the sale is subject to Vermont's land gains tax, with its own 10% withholding on the consideration attributable to land and its own Forms LGT-177 and LGT-178. Why only a Vermont-for-Vermont exchange escapes it is the subject of Vermont land gains tax and 1031 exchanges.

Vermont's income tax treatment of the deferred gain, including the absence of any claw-back when the replacement property is outside the state, is covered on 1031 exchange rules in Vermont.

• When the exchange agreement is signed: open the myVTax request with the agreement, the acquisition closing statement and the depreciation schedule.
• Before closing: certificate number to the buyer's attorney for RW-171 line 13, box B.
• Within 30 days of transfer: buyer files RW-171 with Schedule A for each seller.
• Next filing season: any amount withheld claimed on Form IN-111 from Schedule A, line 12.