Inheriting Property in Vermont: Taxes, Laws & Options
Navigating inherited property in the Green Mountain State involves unique considerations, most notably Vermont's state-level estate tax and the recent codification of Enhanced Life Estate deeds. While Vermont does not impose a separate inheritance tax on heirs, the estate itself may face a flat tax if it exceeds specific value thresholds.
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Vermont-Specific Quick Facts
These facts are specific to Vermont and may differ from the general process described below. Always verify with your local court.
Last verified: 6/30/2026
Vermont Inheriting a property — whether a family home, investment property, or land — comes with legal, financial, and emotional decisions. This guide walks you through the process of handling an inherited property, from securing it and understanding title issues to choosing whether to sell, keep, or rent it.
While the federal framework for inherited property is consistent nationwide, important details — property tax reassessment rules, state estate and inheritance taxes, and probate requirements — vary by state. This guide covers the general process and highlights state-specific differences.
How It Works in Vermont
Vermont Estate Tax Thresholds
Unlike many states, Vermont maintains its own state estate tax separate from the federal government. For deaths occurring in 2024 and 2025, the Vermont estate tax exemption is $5 million. This is a fixed amount and is not currently indexed for inflation. If the total value of the deceased person's estate (including real property) exceeds this $5 million limit, the portion above the threshold is taxed at a flat rate of 16%. It is important to note that Vermont includes any taxable gifts made within two years of death when calculating the estate's total value. Confirm these specific figures with the Vermont Department of Taxes or a local attorney.
Property Transfer Tax Exemptions
Vermont typically charges a Property Transfer Tax (PTT) when real estate changes hands. However, there are significant exemptions for inherited property. Transfers made by a will or a decree of court are generally exempt from this tax. Additionally, transfers between certain family members (such as parents, children, and spouses) are exempt from PTT provided there is 'no consideration' (meaning no money changed hands). While the transfer itself may be exempt, heirs must still file a Property Transfer Tax Return (Form PTT-172) with the town clerk to document the exemption.
Enhanced Life Estate Deeds (Lady Bird Deeds)
Vermont does not use the standard 'Transfer-on-Death' (TOD) deeds found in other states. Instead, Vermont law (specifically codified in 2020 under Act 181) recognizes 'Enhanced Life Estate Deeds,' often referred to as Lady Bird deeds. These allow a property owner to name a beneficiary who will inherit the home automatically upon their death, bypassing the probate process entirely. Unlike a standard life estate, the owner retains the full right to sell, mortgage, or revoke the deed during their lifetime without the beneficiary's consent.
Homestead Protections and Property Tax Credits
Vermont offers a robust homestead exemption for primary residences, protecting up to $125,000 of equity from most creditor claims. This protection automatically vests in a surviving spouse. For property tax purposes, heirs who intend to live in an inherited home as their primary residence must file a new Homestead Declaration (Form HS-122) by April 15th of the year following the transfer. This ensures the property is taxed at the 'homestead' rate rather than the higher 'non-homestead' rate and allows the heir to apply for the Vermont Property Tax Credit based on their income.
Stepped-Up Basis in Vermont
Vermont follows federal guidelines regarding capital gains. When you inherit property, your 'basis' (the value used to calculate profit for tax purposes) is 'stepped up' to the fair market value at the time of the previous owner's death. If you sell the property shortly after inheriting it, you may owe little to no capital gains tax, as you only pay tax on the appreciation that occurs after the date of death.
Inheriting a Property: First Steps
Inheriting a home or real estate brings both emotional and practical challenges. Whether you've inherited a house from a parent, grandparent, or other relative, understanding your options and obligations will help you make informed decisions during a difficult time.
The first priority is securing the property — changing locks, maintaining insurance, and ensuring the home is safe. Then you'll need to determine how the property was titled, whether it needs to go through probate, and what your options are for keeping, selling, or renting it.
How Title Affects What Happens Next
How the deceased held title to the property determines whether probate is needed and how the transfer occurs:
- •Sole ownership: The property typically goes through probate. The executor transfers it to the beneficiary named in the will (or per state intestacy law).
- •Joint tenancy with rights of survivorship: The surviving owner automatically inherits the deceased's share. A death certificate and simple recording usually complete the transfer — no probate needed.
- •Tenancy by the entirety: Available to married couples in some states. The surviving spouse automatically inherits.
- •Living trust: If the property was transferred to a trust during the owner's lifetime, the successor trustee manages and transfers it according to the trust terms — no probate needed.
- •Transfer-on-death (TOD) deed: Available in some states, this allows the owner to name a beneficiary who inherits the property directly upon death, bypassing probate.
Your Options for an Inherited Property
Once you've determined that you're inheriting the property, you generally have four options:
- •Move in: You can take possession and make the home your primary residence. Consider property tax implications — some states reassess inherited property, significantly changing the tax basis.
- •Sell the property: You can list and sell the home, splitting proceeds with co-heirs if applicable. This is the most common choice when multiple beneficiaries are involved or when no one wants to live in the home.
- •Rent it out: You can become a landlord, generating rental income while retaining the property. This requires ongoing management and carries tenant-related responsibilities.
- •Buy out co-heirs: If multiple people inherited the property, one heir can buy out the others' shares to become the sole owner.
Taxes on Inherited Property
Understanding the tax implications of inheriting a property is critical:
- •Stepped-up basis: When you inherit property, the tax basis is generally "stepped up" to the fair market value at the date of death. This means if you sell the property soon after inheriting, you may owe little or no capital gains tax.
- •Estate tax: The federal estate tax exemption is high, so most estates owe no federal estate tax. Some states have their own estate or inheritance taxes with different thresholds.
- •Property tax reassessment: Some states reassess property values on transfer, which can significantly increase property taxes. Other states offer exemptions or protections for inherited primary residences or transfers between family members.
- •Capital gains tax: If you hold the property and it appreciates before you sell, you may owe capital gains tax on the appreciation since the date of death.
Tax rules vary significantly by state. Consult a tax professional or estate attorney to understand the specific implications for your situation.
Dealing with the Contents of an Inherited Home
An inherited home often comes with decades of accumulated belongings — furniture, collectibles, paperwork, household goods, and sentimental items. Sorting through these contents is often the most time-consuming part of settling an estate.
A practical approach:
- •Remove important documents, valuables, and sentimental items first
- •Sort remaining items into categories: keep, sell, donate, discard
- •Consider a professional estate sale for items with resale value
- •Arrange for donations of unsold usable items
- •Schedule a cleanout service for remaining items and debris
An estate sale company can handle the entire process — inventory, pricing, staging, sale execution, and cleanout — which is especially valuable when you live far from the inherited property or when the volume of contents is overwhelming.
Inheriting Property with a Mortgage
If the inherited property has a mortgage, the loan does not automatically disappear. Under federal law (the Garn-St. Germain Act), heirs generally have the right to assume the mortgage and keep making payments, or to sell the property and pay off the loan from the proceeds.
Key considerations:
- •Notify the lender of the owner's death as soon as possible
- •Continue making mortgage payments to avoid default
- •You can typically sell the property without paying off the mortgage first — the loan is paid from sale proceeds at closing
- •If you want to keep the property and refinance, you'll need to qualify for a new loan in your name
- •Reverse mortgages have different rules — the loan typically becomes due when the borrower dies
Official Vermont Resources
Always confirm current forms and fees directly with the court or agency.
Frequently Asked Questions
Vermont-Specific Questions
What is the Vermont estate tax exemption for 2024?
The exemption is $5 million. Estates valued below this amount do not owe Vermont state estate tax. Amounts above $5 million are taxed at a flat 16%.
Does Vermont allow Transfer-on-Death deeds?
Vermont uses Enhanced Life Estate Deeds (Lady Bird deeds) instead of standard TOD deeds. These allow the owner to name a beneficiary and bypass probate while maintaining full control to sell or mortgage the property during their life.
Do I have to pay a tax to put the inherited deed in my name?
While Vermont has a Property Transfer Tax, transfers via inheritance or between close family members for no money are generally exempt, though you must still file the PTT-172 return.
General Questions
Do I pay taxes on an inherited house?
You generally do not pay income tax on the inheritance itself. However, you may face capital gains tax if you sell the property for more than its stepped-up basis (fair market value at date of death). Some states also have estate or inheritance taxes. Property taxes may be reassessed upon transfer.
Can I sell an inherited house without going through probate?
If the property was held in a trust, owned jointly, or had a transfer-on-death deed, you may be able to sell without probate. If the property was solely owned by the deceased, it typically must go through probate before it can be sold, unless your state's small estate procedure applies.
What is a "stepped-up basis" and why does it matter?
When you inherit property, your tax basis is generally reset to the property's fair market value at the date of death. This means if you sell shortly after inheriting, you likely owe little or no capital gains tax, even if the property appreciated significantly during the original owner's lifetime.
What if multiple siblings inherit a house?
Co-heirs must agree on what to do with the property. Options include selling and splitting proceeds, one sibling buying out the others, or renting it out jointly. If siblings disagree, any co-owner can file a "partition" lawsuit to force a sale, though this is a last resort.
Do I need to pay the mortgage on an inherited house?
Yes. The mortgage must continue to be paid to avoid default and foreclosure. Under federal law, you can typically assume the existing loan or sell the property and pay off the mortgage from the proceeds.
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