StructuredSales.org
StructuredSales.org
Vermont does something most New England states do not. It will exclude 40% of certain long-held capital gain, and then it stops. The stop is $350,000 of exclusion in a year, or 40% of federal taxable income if that is less. A dairy family in Addison County selling cropland and a sugarbush can use the exclusion. A couple selling a Stowe house, or a portfolio of public stock, generally cannot. The asset decides, and then the cap decides how much of a big year actually gets the 40%.
The top rate on what remains is 8.75%. There is no separate capital-gains bracket. A structured installment sale under IRC §453 does two different jobs here. Federally, it can keep slices of gain out of the 20% band. In Vermont, because the $350,000 cap is annual, spreading qualifying gain can let the 40% exclusion apply to more dollars than one closed year allows. The exclusion does nothing to the federal return. This page keeps those two ledgers apart.
Vermont taxable income starts from federal taxable income and then adjusts. The Department of Taxes printed 2026 rate schedules in the estimated-tax instructions, and the annual withholding tables effective January 1, 2026 use the same bracket widths and the same four rates: 3.35%, 6.60%, 7.60%, and 8.75%. For a joint return, 8.75% applies above $312,050. For a single return, it applies above $256,300. A sale that is not excluded is taxed in those brackets. Federal long-term rates, 0%, 15%, and 20%, and the 3.8% net investment income tax, are computed before Vermont ever sees the return.
The capital-gains subtraction is in 32 V.S.A. § 5811(21) and is explained in Technical Bulletin 60, revised in 2020, and in the instructions to Schedule IN-153. You elect either the flat exclusion or the percentage exclusion, not both. The flat exclusion is the first $5,000 of adjusted net capital gain. It can apply to gain the percentage method refuses. The percentage exclusion is 40% of adjusted net capital gain from assets you held more than three years, with a list of assets that do not qualify even if you held them longer.
The list is the planning document. The percentage exclusion does not cover real estate used as a primary or nonprimary residence, depreciable personal property other than farm property and standing timber, or stocks, bonds, and other financial instruments that are publicly traded or traded on an exchange. Farmland that is not a residence, standing timber, and other assets off that list can qualify if held more than three years. A closely held business interest is not automatically public stock. Whether your interest is a financial instrument the exclusion refuses is a classification question for the preparer who signs Schedule IN-153.
The cap binds large sales. The decrease from the percentage exclusion cannot exceed $350,000, and it also cannot exceed 40% of federal taxable income. Technical Bulletin 60 states the consequence: adjusted capital gain above $875,000 in the year is taxed at ordinary rates, because 40% of $875,000 is the $350,000 ceiling. Adjusted net capital gain uses IRC §1(h). Unrecaptured §1250 gain, 28% collectibles gain, and qualified dividends are outside it. You claim the exclusion on Schedule IN-153. The statute, the bulletin, and the 2025 instructions describe the same election. The 2026 form instructions were not the document reviewed for this page.
The cap is a limit on the year's subtraction, not a lifetime voucher. Gain you recognize this year can exclude up to $350,000. Gain you recognize next year can exclude up to $350,000 again, if that next year's gain qualifies and if 40% of that year's federal taxable income is large enough. A $1.2 million qualifying gain in one year excludes $350,000 and taxes the other $850,000. The same gain recognized as $200,000 a year excludes $80,000 a year, six times, or $480,000 in total, because each year's 40% is under the cap. That is the Vermont reason to look at installment reporting, separate from the federal brackets.
The holding period is measured at the sale, and it has to be more than three years, longer than the federal one-year long-term test. An asset held for two years can be long-term federally and still limited to Vermont's $5,000 flat exclusion. The exclusion never reduces federal tax. Model the 15% and 20% federal bands and the net investment income tax anyway. Our farmland guide is the federal half of a land sale. Inherited land may already have a step-up.
Vermont follows the federal recognition year because it starts from federal taxable income. Installment gain on Form 6252 is generally on the Vermont return when it is on the federal return, and the exclusion is computed on the gain recognized that year. Ordinary depreciation recapture under §1245 or §1250 is taxed in the year of sale and is not capital gain the exclusion can touch. If a related buyer resells within two years, §453(e) can accelerate you. A sale of depreciable property to a controlled buyer can be ineligible under §453(g). Farm equipment moving to a child's LLC is that pattern. Price it before you sign.
Addison and Franklin County dairy ground, a Champlain Valley parcel held since the 1970s, and Northeast Kingdom standing timber are the sales where the 40% is designed to matter. Maine has no exclusion like this and adds a high-income surcharge. Massachusetts taxes most long-term gain at a flat 5% and then a 4% surtax. Those comparisons are in the Maine and Massachusetts guides.
A primary home in Burlington and a nonprimary house in Stowe or near Killington are residences. The percentage exclusion does not apply to that real estate. The federal §121 exclusion may shelter $250,000 or $500,000 of a primary residence. Anything left is Vermont income, with at most the $5,000 flat exclusion if you elect it. See selling a home with gain over $500,000. Publicly traded stock is in the same flat-exclusion bucket.
A married couple's only sale is farmland and a sugarbush held well over three years. None of it is a residence. Adjusted net capital gain is $1,200,000. Other taxable income is $70,000. They compare one year of recognition with six slices of $200,000. The sketch assumes each year's 40% exclusion also clears the "40% of federal taxable income" cap, which it does on these income levels: the lump-sum year is stopped by the $350,000 dollar cap, and each installment year excludes $80,000, under both caps. Federal tax uses 2026 joint long-term brackets. The Vermont tax uses the joint schedule above. Recapture, credits, and interest on the payments are omitted. The open installment balance is under $5 million. These are estimates.
| Lump sum | Six installments | |
|---|---|---|
| Qualifying gain recognized | $1,200,000 once | $200,000 a year |
| Vermont percentage exclusion used | $350,000 | $480,000 |
| Vermont tax on the gain | $69,767 | $44,651 |
| Federal long-term capital gain tax | $208,480 | $153,990 |
| Federal 3.8% net investment income tax | $38,760 | $4,560 |
| Combined tax on the gain | $317,007 | $203,201 |
Vermont tax is about $25,100 lower because the exclusion covers $480,000 instead of $350,000, and because the installment years stay in the 6.60% bracket. The federal difference is larger. The combined illustration is about $113,800 lower. The Vermont exclusion did not reduce the federal column. If part of the price is the farmhouse, pull that portion out of the 40%. If the asset is exchange-traded stock, the percentage column is zero. The calculator does not apply Schedule IN-153.
The $350,000 figure is a cap on the exclusion, not on the gain. Dollar amounts in the table are rounded to the nearest dollar from the rate schedule. They are estimates, not a promise of savings.
Separate the residence from the land, the standing timber from the equipment, and the private business interest from anything with a ticker. Then ask whether one year's cap wastes exclusion you could use over several years of qualifying gain. A 1031 exchange, if the property qualifies, pushes the federal and Vermont recognition out together. An installment sale recognizes a slice each year and reopens the exclusion. Both are discussed in farmland: 1031 or installment. The installment wording has to be in the contract before closing.
You choose one, not both. The flat exclusion is the first $5,000 of adjusted net capital gain. The percentage exclusion is 40% of adjusted net capital gain from assets held more than three years, except gain the statute leaves out. The decrease from the percentage exclusion cannot exceed $350,000 or 40% of federal taxable income, whichever is less. Adjusted net capital gain follows IRC section 1(h), so unrecaptured section 1250 gain and collectibles gain are not in it. Qualified dividends do not qualify.
No. The percentage exclusion does not apply to real estate used as a primary or nonprimary residence, to depreciable personal property other than farm property and standing timber, or to stocks, bonds, and other financial instruments that are publicly traded or exchange-traded. A ski house in Stowe and a mutual fund are in the $5,000 flat exclusion if anything. Farmland and standing timber held more than three years can use the 40%.
It is a limit on the decrease in taxable income for the year, not a lifetime coupon. Technical Bulletin 60 describes the cap as applying to the exclusion claimed. Recognizing qualifying gain over several years can use the 40% exclusion in each year, up to that year's cap. A single year of gain above $875,000 cannot exclude more than $350,000, because 40% of $875,000 is $350,000.
No. It is a subtraction in computing Vermont taxable income, which starts from federal taxable income. Federal long-term rates and the 3.8% net investment income tax still apply to the full federal gain. An installment schedule can lower the federal bill and, separately, let more of a qualifying gain use the Vermont percentage exclusion.
The Department's 2026 estimated-tax instructions, and the bracket widths in the 2026 withholding tables effective January 1, 2026, use 3.35%, 6.60%, 7.60%, and 8.75%. For joint filers the 8.75% rate starts above $312,050 of Vermont taxable income. For single filers it starts above $256,300. Capital gain that is not excluded is taxed in those ordinary brackets.
Last reviewed: October 22, 2026.
Answer 6 questions and get a personalized structured installment sale estimate — free, no obligation.
Take the Free Assessment →