Property taxes in the US: Is it expensive to buy property?

Beyond annual property taxes, buyers face one-off costs at purchase, and sellers may owe capital gains tax. This guide walks through every property-related tax in the US.

🏠 What are the main property taxes in the US?

Unlike countries with a single national property tax, the US system is decentralized. Property taxes are set and collected by local governments, such as counties, cities, and school districts, not by the federal government.

This means rates can vary enormously, not just from state to state, but from county to county.

The main taxes you may encounter as a property owner or buyer are:

• 📋 Annual property tax — a recurring tax on the assessed value of your home, paid to local authorities
• 📋 Transfer tax (deed tax) — a one-off tax on the transfer of property ownership, paid at closing, to local authorities
• 📋 Capital gains tax — a tax on the profit from selling a property, which may apply at both state and Federal levels

There is no national property purchase tax at the federal level, and state level application of taxes may also vary based on location and individual situation.

Get professional advice if you’re unsure what taxes you may need to pay for your property in the US.

💡 Writer tip: A common source of confusion is the distinction between real estate taxes and property taxes. These terms are used interchangeably in the US and refer to the same thing. The IRS tends to use “real estate taxes” in its publications, while most local authorities use “property taxes.”

Who is subject to these taxes? 🤔

Almost anyone who owns real estate in the US is likely to be subject to annual property taxes, including residents, non-residents, and foreign nationals. There is no legal distinction based on citizenship or immigration status when it comes to owning property and owing property taxes.

Capital gains tax applies to both US residents and non-residents who sell US property. Non-residents selling US real estate are typically subject to withholding requirements under FIRPTA (the Foreign Investment in Real Property Tax Act), which requires the buyer to withhold a portion of the sale price for tax purposes.

Corporations and LLCs that own property also owe property taxes, calculated in the same way as for individual owners.

Taxes on buyers

When you purchase a property in the US, a few transaction-related taxes may apply depending on where the property is located.

Transfer tax

Also called a deed tax or real estate transfer tax, this is a one-off tax on the transfer of property ownership. In some states this is paid by the buyer and seller jointly, although in other locations this may be paid by the seller only.

It varies significantly by state and county. Some states, including Texas, Montana, and Alaska, have no transfer tax at all, while others can charge up to 2% or more of the sale price.

Always check the rules for the specific location you are buying in, as rates differ at the state, county, and sometimes city level.

VAT

The US does not have a Value Added Tax (VAT). Instead, individual states levy sales tax, but residential property purchases are generally exempt.

You should not expect to pay a sales tax equivalent on your home purchase.

Exemptions:

• ✅ First-time homebuyers may be eligible for reduced transfer tax rates in some states
• ✅ Properties below a certain value threshold may be exempt in some jurisdictions
• ✅ Transfers between family members or certain types of trusts may qualify for exemptions depending on state law

Taxes on sellers

Depending on the location of the property, and your negotiation with the buyer, you may need to pay some or all of the transfer tax described above.

When you sell a property in the US, capital gains tax may also apply to any profit you make.

Capital gains tax

Capital gains tax (CGT) is the tax you pay on the increase in value of your property between when you bought it and when you sold it.

The rate depends on how long you owned the property and your total income that year. If you owned the property for more than one year, long-term capital gains rates apply: 0%, 15%, or 20%, depending on your taxable income. Short-term gains, where property is held for less than a year, are taxed as ordinary income, which can be significantly higher.

One thing worth knowing is that non-residents selling US property are generally subject to US capital gains tax regardless of where they live. A mandatory withholding of 15% of the sale price, under FIRPTA, may apply unless a specific exemption or reduced rate is requested.

Exemptions:

• ✅ If the property is your primary residence and you have owned and lived in it for at least two of the five years before the sale, you can exclude up to $250,000 of gain if you are single, or $500,000 if you are married filing jointly
• ✅ This exclusion can only be used once every two years
• ❌ The exclusion does not apply to second homes, investment properties, or vacation homes that have not met the use test

Get legal advice to check your CGT and other tax duties when selling a home.

Taxes on homeowners: recurring payments

Annual property tax is the main recurring tax for property owners in the US. It is calculated each year based on the assessed value of your home, multiplied by the local tax rate, often called the mill rate.

The formula looks like this:

Assessed Value x Mill Rate = Annual Tax (before exemptions)

The assessed value may differ from the market value. Some states assess at 100% of market value, while others use a fraction. This is why comparing headline tax rates between states can be misleading without also knowing the assessment ratio.

Once you receive your assessment, you usually have the right to appeal it if you believe the value is too high. Local assessors are required to reassess properties periodically, though the frequency varies by state.

Exemptions:

• ✅ Homestead exemption — most states reduce the taxable value of a primary residence through a homestead exemption, which lowers your annual bill. This is the most common exemption in the US.
• ✅ Senior citizen exemption — many states offer additional relief to homeowners aged 65 and older, sometimes means-tested based on income.
• ✅ Veterans exemption — available in most states for qualifying veterans, including disabled veterans who may receive full exemptions in some jurisdictions.
• ✅ Disability exemption — permanently disabled homeowners may qualify for property tax reductions in many states.
• ✅ Non-profit and religious organizations — properties owned by qualifying organizations are generally fully exempt from property taxes.

Is rental income taxed? 🤔

Yes. If you rent out a property in the US, your rental income is generally taxable as ordinary income at the federal level. You will report it on Schedule E of your federal tax return, and the applicable rate depends on your overall taxable income for the year.

One thing worth knowing is that there is a useful offsetting mechanism: you can deduct many expenses against your rental income, which reduces your taxable profit.

Deductible expenses typically include mortgage interest, property taxes, insurance, maintenance and repairs, property management fees, and depreciation.

Exemptions:

• ✅ If you rent out your property for fewer than 15 days in a year, you do not need to report the rental income to the IRS, and no tax is owed on it
• ⚠️ If the property is also your personal residence and you rent it for 15 days or more, the deductions must be split proportionally between personal and rental use

First vs second home: tax implications 🔑

The tax treatment of a first (primary) home is more favorable than for a second home or investment property in several important ways.

	🏠 Primary home	🏖️ Second home / investment property
Annual property tax	Standard rate applies	Standard rate applies
Homestead exemption	✅ Available	❌ Not available
Capital gains exclusion	✅ Up to $250k/$500k	❌ Not available
SALT deduction	✅ Up to $40,000 combined	✅ Counts toward same $40,000 cap

A common question is whether the capital gains exclusion can apply to a vacation property you also use personally. The answer is no, unless you have used it as your main home for at least two of the five years before the sale.

The $40,000 SALT deduction cap, raised in 2025 under the One Big Beautiful Bill Act, applies to your combined state and local taxes across all properties. If you own two homes and pay property taxes on both, those amounts are added together and capped at $40,000.

💡 How to save money on your property purchase

If you are buying property in the US from overseas or moving money internationally to fund a purchase, currency conversion costs can quietly add up.

Banks often build their margin into the exchange rate used, rather than charging a visible upfront fee, meaning the total cost of the transfer can be higher than it first appears.

Using a money transfer provider like Wise can help reduce those costs. Wise uses the mid-market exchange rate with low transparent fees, which can help you keep the costs down, especially on large transfers like a down payment or closing cost payment.

You can also use Wise to send funds internationally between accounts if you are managing property costs across different currencies.

Wealth taxes in the US 💸

The US does not have a federal wealth tax. There is no national annual tax applied to your total net worth or the value of assets you hold, including property.

Some states do levy personal property taxes on certain movable assets like vehicles, boats, or business equipment, but these are separate from real estate taxes. Your home is not subject to this kind of personal property tax.

Federal estate tax does apply to estates valued above $15 million (as of 2026), which could include the value of property in a large estate. However, this only affects a small number of very high-value estates and is paid by the estate after death rather than during ownership.

How to pay your taxes 📬

Annual property taxes are administered and collected at the local level, typically by the county assessor or tax authority.

Tax bills are usually mailed to homeowners and are due once or twice a year, depending on the jurisdiction. Many mortgage lenders collect property taxes as part of your monthly payment and hold them in an escrow account until the bill is due.

⚠️ If you fall behind on property taxes, the consequences are serious. The taxing authority can place a lien on your property – that’s a legal claim against your real estate. If the debt remains unpaid, the property can eventually be seized and sold to recover what is owed.

Transfer taxes are typically paid at closing as part of the transaction costs.

Capital gains tax is reported on your federal income tax return for the year in which you sold the property. Returns are due in April of the following year. If you expect to owe a significant amount, you may need to make estimated tax payments during the year. You can file your return and pay through the IRS at irs.gov.

When to speak to a tax professional 🧑‍💼 💼

US property taxes may be relatively simple to understand at a general level, but the complexity increases quickly once you factor in state-specific rules, non-resident obligations, rental deductions, or the capital gains exclusion rules.

It is a good idea to speak with a qualified tax professional before selling a property, if you are a non-resident or expat, if you are renting out your home, or if you are buying a second property.

Getting professional advice early can help you avoid unexpected bills and make the most of available exemptions.

FAQs

Are property taxes and real estate taxes the same thing?

Yes. In the US, the terms are used interchangeably. The IRS uses “real estate taxes” in its official publications, while most local governments refer to them as “property taxes.” Both describe the annual tax charged on the assessed value of real estate you own.

How are property taxes calculated in the US?

Your local tax assessor determines the assessed value of your property, which may be the full market value or a percentage of it. That assessed value is then multiplied by the local mill rate, which is expressed in thousandths of a dollar. For example, a mill rate of 15 on a home assessed at $400,000 would result in a $6,000 annual tax bill. Exemptions, such as the homestead exemption, can reduce the taxable value before the rate is applied.

What happens if you don’t pay property taxes?

If you stop paying property taxes, the local tax authority will add interest and penalties to the amount owed. Eventually, a tax lien will be placed on your property. If the debt is still not cleared, the property can be sold at a tax sale to recover the unpaid taxes. Many states offer grace periods or payment plans, so contacting your local tax authority early is important if you are struggling to pay.

Are property taxes deductible?

Yes, in many cases. If you itemize deductions on your federal tax return, you can deduct state and local property taxes. However, the total deduction for all state and local taxes (income, sales, and property taxes combined) is capped at $40,000 per tax return, or $20,000 for married couples filing separately. This cap was raised from $10,000 in 2025 under the One Big Beautiful Bill Act.

When are property taxes due?

Due dates vary by state and county. In many places, property taxes are due once a year, often in April or January. Some jurisdictions allow you to split the bill into two or four installments. If you have a mortgage, your lender may collect property taxes monthly as part of your payment and pay the bill on your behalf when it is due.

Useful resources

(Information last checked on 9th June 2026)

• Internal Revenue Service (IRS) — the federal tax authority, with guidance on capital gains, deductions, and homeowner tax benefits
• Tax Foundation — independent research on property tax rates by state and county, updated annually
• Federation of Tax Administrators — find the official tax authority for each US state, useful for looking up local property tax rates and payment information