Tax Department proposes homestead exemption to reshape Vermont property tax credits

Jake Feldman, Tax Department, told a legislative committee that the administration plans to reconfigure the education portion of Vermont’s income-based property tax credit as a homestead exemption tied to household income tiers and property value limits.

Feldman said the department does not recommend adding an asset declaration to claims, calling such a requirement “very burdensome” for roughly 125,000 homestead filers and noting there is no established process to verify many asset types. Instead, the department’s proposal would apply percentage exemptions of a home’s assessed value at three income tiers (up to $47,000; $47,000–$90,000; $90,000–$125,000), with the lowest tier receiving the largest percentage (outlined in the presentation as 60% for the lowest tier) and a maximum exemption capped at $200,000. Feldman said the proposal includes an extra 10 percentage points for seniors in the lowest tier.

The presentation framed the change as a shift of benefit from higher-value properties toward lower-value properties. Feldman noted the current credit structure already produces larger dollar benefits for owners of higher-value homes because the credit is tied to a portion of house-site value (current law limits were discussed as a $400,000 base for parts of the current credit and a $225,000 cap at higher incomes). "The tax department does not recommend including an asset declaration," Feldman said, adding that valuing and verifying nonliquid assets such as collectibles or second homes would impose an administrative and compliance burden.

Committee members raised several implementation and equity questions. One asked whether municipal taxes are included; Feldman said municipal taxes would continue to be handled under the current format and the administration intends the change to apply to the education portion of the program. Members asked how the change would affect individual taxpayers; Feldman said the department can provide detailed breakouts and examples for different income/property combinations and intends to supply more granular analyses to the committee.

Feldman described alternative mitigation options should some households face higher bills under the exemption model: (1) reconfiguring the circuit-breaker credit to be delivered as an income-tax refund rather than a bill credit, (2) property tax deferral programs (which he said exist in about 30 other states), and (3) other finance tools such as reverse mortgages. He noted deferral programs typically require liens and interest and tend to have low utilization. Feldman also said a legislative “patch” last year increased property tax credits by about 13 percent to compensate for lag in the system, a measure that he estimated cost in the low tens of millions of dollars.

Feldman said a bill carrying the proposal is expected; he did not provide a firm effective date but said the department is coordinating timing with the broader package and that effective dates being considered were fiscal year 2027 or 2028. He told the committee the administrative change would be similar to current processes: taxpayers would continue to declare homestead status on their state tax return and the department would notify property owners and towns of the exemption amount for the coming year.

No formal vote was taken at the meeting; the session was a presentation and discussion of the department’s study and the administration’s proposal. Feldman repeatedly encouraged committee members to read the department’s report and said he would return with more detailed tables and examples on winners and losers under the proposal.

The discussion included references to prior law and research cited by Feldman: the presentation began from a legislative request in the Yield Bill (Act 183) that asked the tax commissioner to recommend administrative and policy improvements (section 21), and the presentation referenced Act 60, Act 11 of 2018, and research from the Lincoln Institute of Land Policy.