Vermont has no separate capital gains rate. A gain is part of your federal taxable income and is taxed at the same graduated rates as wages, so a large sale can push you into the top bracket. What Vermont does have is an exclusion that lowers the taxable part of some gains, and it works very differently depending on what you sold: land, rental buildings and farm assets can qualify for a 40% exclusion, while your home and publicly traded stock cannot.
This guide uses the Vermont statutes (32 V.S.A. sections 5811, 5822 and 5824 as shown on the legislature's site), the Department of Taxes' 2025 Schedule IN-153 instructions, its capital gains exclusion regulation (effective 3/11/14) and its 2026 Legislative Highlights page, all read on 3 November 2026. The Department's income tax rate and taxable income web pages would not load for us, so the rates come from the statute text; the bracket amounts we show are the preliminary 2026 schedules printed in the Department's 2026 Form IN-114 instructions, and the final 2026 rate schedule PDF was not reachable for us.
The statute imposes the tax on the taxable income of every individual, estate and trust, and Vermont adopts the federal income tax statutes as in effect on 31 December 2025, without regard to federal income tax rates (the Department's 2026 Legislative Highlights also list selective conformity exceptions to the 2025 federal law, H.R. 1). In practice your gain flows from the federal return into Vermont taxable income, then Vermont applies its own table: 3.35%, 6.6%, 7.6% and 8.75% in the statute's rate tables for each filing status.
The statute says the bracket amounts are adjusted annually for inflation by the Commissioner of Taxes, so the dollar amounts in the statute text are not the current ones. The Department's 2026 Form IN-114 instructions print preliminary 2026 rates: for a single filer, 3.35% up to $50,750, 6.6% to $122,850, 7.6% to $256,300 and 8.75% above that; for married filing jointly, 3.35% up to $84,700, 6.6% to $204,750, 7.6% to $312,050 and 8.75% above that. These are labelled preliminary, so check the final 2026 rate schedule for your filing status. The Department's 2026 Legislative Highlights list no change to the rates. Separately, if your federal adjusted gross income exceeds $150,000, the statute says the tax is the greater of the table tax or 3% of federal adjusted gross income. In our reading, that floor could matter when a large share of your income is excluded.
The statute lets you subtract from federal taxable income either the first $5,000 of adjusted net capital gain income or 40% of adjusted net capital gain income from the sale of assets held for more than three years. The Department's instructions say taxpayers elect one method, and its regulation says you cannot take both in the same year. Either method is capped: the instructions say the amount excluded under either method cannot exceed 40% of federal taxable income or $350,000, whichever is less. The Schedule IN-153 instructions describe this as 40% of gain up to $350,000, with a stated maximum Vermont exclusion of $875,000, which we read as the gain amount at which 40% reaches the $350,000 cap.
Only adjusted net capital gain as defined in I.R.C. section 1(h) counts, and qualified dividends are not eligible for capital gains treatment in Vermont. The regulation says adjusted net capital gain does not include short-term gain but includes most long-term gain, and that it does not include section 1250 gain (the unrecaptured gain on depreciable real estate) or 28 percent gain (collectibles gain), so the flat $5,000 is not a short-term gain break and part of a rental building gain may not count at all. The Department's 2025 instructions state the flat amount as $5,000 or the actual net adjusted capital gain, whichever is less; check the 2026 instructions when they appear to confirm the amount did not change.
The 40% option excludes gain on real estate used as a primary or nonprimary home, on depreciable personal property other than farm property and standing timber, and on publicly traded or exchange-traded stocks, bonds and other financial instruments, even if you held them for years. This table is our summary of the statute and the Department's instructions, not an official chart:
| What you sold (held more than 3 years) | 40% exclusion? | $5,000 flat exclusion? |
|---|---|---|
| Business or investment real estate (shop, office, apartment building, raw land) and farm real estate (not your home) | Yes, per the regulation's examples (not the unrecaptured section 1250 part) | Yes |
| Farm personal property and standing timber | Yes (the depreciable personal property bar excludes them) | Yes |
| Your primary or nonprimary home (any real estate used as a residence) | No | Yes |
| Publicly traded or exchange-traded stocks, bonds and other financial instruments | No | Yes |
| Depreciable personal property other than farm property and standing timber | No | Yes |
| Anything held three years or less | No | Yes (if it is adjusted net capital gain) |
The Department's regulation lists examples that do qualify (business real estate, investment real estate such as an apartment building or raw land, and farm real estate) and examples that do not (a primary residence, second home, camp, cottage or ski condominium). The regulation also says land that was part of a residential parcel at the time of sale does not qualify even if subdivided first, that a gain on a parcel with both a house and qualifying land is allocated between them (and taking the 40% option on the eligible part means the $5,000 is not available for any part), that stock in a closely held corporation and interests in LLCs or partnerships that are not publicly traded can qualify, and that in an installment sale the three-year test depends on when title passes. It is an older regulation (effective 3/11/14) and we read it as extracted PDF text, so read it before relying on a borderline case.
These figures are our own arithmetic, not a Department calculation. Either exclusion is limited by the lower of $350,000 and 40% of federal taxable income, so the table below assumes federal taxable income is high enough that the 40% of taxable income test is not the limit.
| Eligible long-term gain | 40% of the gain | Exclusion allowed (before the 40% of federal taxable income test) |
|---|---|---|
| $100,000 | $40,000 | $40,000 |
| $500,000 | $200,000 | $200,000 |
| $875,000 | $350,000 | $350,000 |
| $1,500,000 | $600,000 | $350,000 |
Worked example (ours): you sell investment land held five years for a $200,000 long-term gain, and your federal taxable income including the gain is $300,000. The percentage exclusion is 40% of $200,000, which is $80,000 (below both $350,000 and 40% of $300,000, which is $120,000). Compared with the $5,000 flat exclusion, that removes an extra $75,000 from Vermont taxable income. At the statute's 3.35% rate that is about $2,513 less tax; at the 8.75% top rate it is about $6,563. Which rate applies depends on the inflation-adjusted brackets, and the 3% floor described above could limit the saving for a high-income filer.
If instead the $200,000 gain came from shares in a listed company or from your home, the 40% option is unavailable and the most the flat exclusion removes is $5,000, worth between $168 and $438 of Vermont tax at the 3.35% to 8.75% rates.
The Department's instructions say no Vermont exclusion is available when a net capital loss is reported, even if the sale of farm property or standing timber produced a gain. If you have a loss on an asset that would have qualified for the 40% exclusion had it produced a gain, the regulation says the loss must be netted against gains that qualify for the 40% exclusion. We did not read a Vermont-specific rule for loss carryforwards or for how much loss offsets ordinary income, so follow your federal return and ask the Department or a tax professional about a loss year.
Gain on real estate used as a primary or nonprimary home is excluded from the 40% option by statute, so the most Vermont lets you subtract on a home sale is the flat $5,000 (if you have that much adjusted net capital gain). Vermont starts from federal taxable income, so whatever federal exclusion you claim on the sale of your main home reduces the gain before Vermont sees it; we have not read a Vermont page that states this in terms, so confirm it for your return. Our home sale guide covers the federal rules.
For people with income outside Vermont, the statute reduces the Vermont tax by a percentage equal to the portion of adjusted gross income that is not Vermont income. A 2026 change (Act 164, H.933) clarifies that this apportionment for resident and part-year resident individuals, estates and trusts uses a modified version of the Vermont taxable income definition; the Department's Legislative Highlights page says individuals cannot claim personal exemptions, the standard deduction or the medical expenses deduction in that modified figure, and gives the effective date as taxable years beginning on and after January 1, 2025. We did not read a Department page that says which gains of a nonresident are Vermont-source (for example, real estate in Vermont versus shares), so we do not state that rule here. Ask the Department or a professional before filing a part-year or nonresident return with a large gain.
The Department's 2026 Legislative Highlights say Act 164 (H.933) requires Vermont individuals, estates and trusts to add back an amount equal to the federal exclusion for qualified small business stock sales, effective retroactively on January 1, 2026 and applying to taxable years beginning on and after January 1, 2026. It adds that Vermont's 40% capital gains exclusion (up to $350,000) is generally available to this income. The statute text we read carries the same rule: the added-back gain may be decreased under the 40% exclusion even though listed stock is otherwise barred.
The exclusion is calculated on Schedule IN-153, Capital Gains Exclusion. The instructions say to enter the amount from Line 21 onto Schedule IN-112, Vermont Tax Adjustments and Credits, Part I, Line 8. The regulation advises keeping records of the source of the gain in case the Department asks for them.