Vermont Senate Finance replaces property tax credit with new homestead exemption structure

A significant shift in Vermont's property tax structure was unveiled during the Senate Appropriations meeting on May 16, 2025, as lawmakers discussed the replacement of the statewide property tax credit (PTC) with a new homestead exemption based on income and house site value. This change aims to streamline tax relief for homeowners while addressing the complexities of the current system.

The proposed homestead exemption will provide financial relief to eligible homeowners whose household income does not exceed $100,000. Under this new structure, homeowners will receive a percentage exemption on the first $425,000 of their house site value, with varying rates depending on income brackets. For instance, those earning between $0 and $2,000 could receive a 99% exemption, while those earning between $45,000 and $50,000 would receive an 80% exemption on the same value.

This reform is designed to replace the existing income sensitivity measures, which have been criticized for their complexity and inefficiency. The new approach is expected to simplify the process for homeowners and provide a more equitable distribution of tax relief. Importantly, while the statewide PTC will be eliminated, municipal property tax credits and circuit breakers will remain intact, ensuring some level of local support for property owners.

In addition to the homestead exemption, the meeting also addressed the establishment of regional assessment districts aimed at improving the efficiency of property appraisals. By 2030, municipalities will collaborate to hire third-party firms for reappraisals, potentially reducing costs and improving accuracy in property valuations.

As Vermont moves forward with these changes, the Department of Taxes is tasked with developing a new homestead declaration form and conducting a study on property tax classification systems. This study will explore options for differentiating tax rates for various property types, including second homes and short-term rentals, to ensure a fairer tax burden distribution.

The implications of these reforms are significant, as they aim to alleviate financial pressure on homeowners while modernizing the state's property tax system. Lawmakers anticipate that these changes will lead to a smoother transition for taxpayers and a more sustainable fiscal future for Vermont.