Vermont property owners with second homes and short-term rentals could see their tax bills jump by thousands of dollars under a new classification system outlined in a report released this month by the state Department of Taxes.
The report details how Act 73 of 2025—Vermont’s sweeping education finance reform—will create a separate tax category for “nonhomestead residential” properties beginning in fiscal year 2029. The new classification specifically targets second homes, vacation properties, and short-term rentals like Airbnbs, allowing the state to tax them at substantially higher rates than primary residences.
According to tax rate scenarios presented in the report, second home owners could face rates as high as $2.00 per $100 of property value, compared to $1.00 to $1.30 for primary residences. On a $500,000 property, that difference translates to a $5,000 annual tax increase—a dollar-per-dollar jump that represents the largest rate differential in Vermont’s modern property tax history.
“The difference in rates for a second home versus a primary residence in Set 1 would be a full dollar, which equates to a $5,000 tax increase on a house worth $500,000,” the report notes, comparing this to the current system where nonhomestead rates typically run just 20 cents higher than homestead rates in most towns.
The higher taxes are designed to fund a new homestead property tax exemption that will reduce bills for lower-income Vermonters living in lower-value homes. But the report makes clear that second home owners will bear the full cost of that relief.
New Paperwork Requirements
Beyond higher rates, property owners will face significant new administrative burdens. Starting in January 2028, anyone who owns property with one to four dwelling units must file an annual “Dwelling Use Attestation” form declaring how each unit will be used in the coming year.
Failure to file carries harsh penalties: the entire property defaults to the highest second-home tax rate, even if it qualifies for a lower classification as a primary residence or long-term rental.
The report warns this could create problems for the estimated 27,000 Vermont homeowners who currently don’t file homestead declarations—perhaps because their income is low enough they’re not required to file state income tax returns. Under current law, these properties simply get taxed at the slightly higher nonhomestead rate. Under the new system, they could face dramatically higher bills.
“In that case, the tax impact of not filing a homestead declaration could be much greater,” the report cautions.
Implementation Challenges
The Department of Taxes is candid about the challenges ahead. Vermont’s property tax system, the report notes, “lacks many of the elements that would ideally be in place” to implement this kind of classification.
States like Minnesota, Montana, and Hawaii that successfully tax second homes differently rely on annual property revaluations, restrictive zoning and permitting requirements, and well-staffed county assessment offices. Vermont has none of these.
Instead, Vermont uses part-time elected town listers who receive “nominal stipends” and work with outdated property data. The new law will require these officials to identify every year-round dwelling in their towns—including verifying square footage for each unit—by June 2027.
“The initial work required for this implementation step—identifying all dwelling units—is likely to be most challenging in small towns with the fewest resources,” the report states, noting that many rural communities lack comprehensive building records and have no zoning regulations.
The Department surveyed local assessors about whether they could distinguish year-round homes from seasonal camps. Only 62.5% said it was possible, with many expressing concerns about the subjectivity involved. “Many people choose (or are forced) to live in properties full-time that many would NOT consider year-round habitable,” one assessor wrote.
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What Gets Taxed Higher?
Properties that will face the elevated nonhomestead residential rate include:
- Second homes and vacation properties fit for year-round use
- Short-term rentals (Airbnbs, VRBOs, etc.)
- Vacant residential properties with dwelling units
- Any property with 1-4 dwelling units where the owner doesn’t file proper attestations
Notably, the Department recommends excluding seasonal camps and cottages from the new classification—properties not suitable for year-round habitation would continue to be taxed as they are now. Long-term rentals would also be exempt if owners can prove units were rented for 30+ consecutive days for at least six months of the year.
Contingencies and Timeline
The new classification system won’t automatically take effect. Act 73 includes several contingencies: the Legislature must approve new school district boundaries by January 2027, those districts must be operational by July 2028, and lawmakers must vote to approve specific tax rate multipliers by that same date.
If all contingencies are met, property owners will first see the new rates on their July 2028 tax bills—just months after filing their first dwelling use attestations.
The Department of Taxes emphasizes that property owners should pay close attention to filing requirements and deadlines to avoid unexpected tax increases. As the report concludes, “the extraordinarily fact-heavy determination of both ‘use’ and ‘dwelling’ increases the risk for misclassification.”
Dave Soulia | FYIVT
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