| Rule Number: |
13P046 |
| Title: |
Capital Gains Exclusion |
|
Type:
|
Standard |
|
Status:
|
Adopted |
| Agency: |
Department of Taxes; Agency of Administration
|
| Legal Authority: |
32 V.S.A. § 3201(a)(1) and 3 V.S.A. § 801(b)(11) |
| Summary:
| Certain capital gain income is exempted from the Vermont individual income tax. A taxpayer may exclude the greater of (1) the first $5000 of adjusted net capital gain income or (2) 40 percent of adjusted net capital gain income from the sale of assets held more than 3 years. However, residential real estate, most depreciable personal property and publicly traded stocks and bonds do not qualify for the exemption. This rule explains the term "adjusted net capital gain income"; the scope of the 40 percent exemption; the treatment of asset sales versus (non-public) stock sales; how the exclusion flows to pass-through entities; that Vermont follows federal law with respect to basis, holding period and the characterization of a sale; and filing requirements. |
| Persons Affected:
| Taxpayers with adjusted net capital gain income and their tax preparers. |
| Economic Impact:
| The rule provides certainty regarding consequences of sales of small businesses structured as limited liability companies (LLC) or partnerships, providing that adjusted net capital gain from the sale of a membership interest (LLC) or a partnership interest is eligible for exclusion as long as those interests are not publicly traded. This puts these entity forms on the same footing as closely held corporations, which are addressed directly in statute. The rule also provides certainty with respect to treatment of gain from the sale of a single-member pass-through entity. Federal law disregards these entities (which results in significant tax advantages to the owner) and treats the assets as belonging to the owner. Consequently, the rule also treats this as an asset sale; and eligibility for the 40 percent exclusion depends upon the nature of the asset in accordance with the statutory categories. The rule also expressly incorporates federal law with respect to personal use of investment real estate. |
| Posting date: |
Dec 11,2013 |
