United States – Property Taxes

What taxes and fees apply when buying a property in the United States?

In contrast to countries such as the UK or Australia, the United States imposes no single national-level purchase tax comparable to stamp duty. The transaction costs associated with buying property are instead governed by state and local rules. Real estate transfer taxes represent a one-time charge levied by a state or local government each time property ownership changes hands. Not every state collects a transfer tax, and where they do apply, the amount depends on your location and is calculated as a proportion of the purchase price.

Real estate transfer taxes differ considerably from one state to another, generally falling within a range of 1% to 5%, and are highly dependent on location. Depending on the jurisdiction, the tax may be structured as a flat fee or expressed as a specified amount for every $100, $500, or $1,000 of the property’s transferred value. For instance, Arizona levies a flat fee of $2, while West Virginia charges $1.10 per $500 of value.

Local municipalities may also layer on their own transfer taxes on top of those charged at the state level. In Los Angeles County, for example, five cities assess an additional fee, with the City of Los Angeles charging between 0.45% and 5.95%. Both New York City and New York State apply property conveyance taxes on a tiered basis according to price, and properties exceeding $1 million face an additional charge known as a “mansion tax.”

Each municipality determines which party bears the transfer tax — sometimes the buyer pays, sometimes the seller does, and in other cases the cost is divided between them. In competitive markets, this is frequently a subject of negotiation. Beyond transfer taxes, buyers typically face charges for title insurance, lender fees (when financing with a mortgage), property inspection costs, title search fees, attorney fees (mandatory in some states), and a pro-rated share of annual property taxes. Legal and notary costs in the US tend to be lower than in civil-law countries where notaries take on a more prominent role, such as France or Spain.

Worked example — $400,000 home purchase in a typical US state (as of 2025):

• State/county transfer tax (~0.5%): ~$2,000
• Title insurance (buyer’s policy, ~0.5%): ~$2,000
• Title search and settlement fees: ~$500–$1,000
• Home inspection: ~$300–$600
• Attorney fees (where applicable): ~$500–$1,500
• Pre-paid property taxes and homeowner’s insurance escrow: ~$2,000–$4,000
• Estimated total buyer closing costs: approximately 2%–5% of the purchase price

Always verify current transfer tax rates with your state’s department of revenue or the relevant county recorder’s office, as rates change. The IRS website (irs.gov) also publishes guidance on the tax treatment of closing costs.

What taxes and fees apply when selling a property in the United States?

In many situations, responsibility for paying the real estate transfer tax falls on the seller, though this depends on state law and can be subject to negotiation. Some states place the obligation squarely on the seller, while others assign it to the buyer or divide it between both parties. Transfer taxes are generally not deductible from federal income tax, though sellers can use them to reduce their taxable gain on the property.

For most sellers, the largest single selling cost is the real estate agent’s commission. Historically this has totalled around 5%–6% of the sale price, covering both the buyer’s and seller’s representatives. Following a landmark legal settlement in 2024, commission arrangements have become more transparent and more varied — always confirm current market rates with your agent before proceeding.

Sellers may also face attorney fees (especially in states such as New York, Massachusetts, and Georgia, where legal representation at closing is standard), title-related charges, any seller concessions agreed with the buyer, and outstanding property taxes or Homeowners Association (HOA) dues prorated to the closing date. Where a mortgage exists on the property, the outstanding payoff balance is settled at closing. Taken together, sellers in the US should generally plan for total selling costs of approximately 6%–10% of the sale price, with agent commissions accounting for the bulk of that figure. Always confirm current figures with a licensed real estate agent and a tax professional.

Is capital gains tax payable on property sales in the United States?

Capital gains tax (CGT) can arise when US property is sold for more than its original purchase price. That said, a substantial primary residence exclusion means that a large proportion of homeowners owe no federal CGT at all when they sell their main home. The capital gains home sale tax exclusion allows homeowners who satisfy certain conditions to exclude up to $250,000 of capital gains from their taxable income — or up to $500,000 for married couples filing a joint return.

To qualify, the taxpayer must generally have both owned and lived in the property as their principal residence for a combined period of at least two years within the five-year window ending on the date of sale. The exclusion can be used repeatedly as long as the eligibility requirements are met each time, but as a rule it may not be applied more than once every two years.

This rule is widely referred to as the “2-out-of-5-year rule” and is broadly comparable to the principal private residence (PPR) relief available in the UK, though the US approach uses a fixed dollar cap rather than a percentage-based relief. Where a gain exceeds the exclusion limit, or where the property was not used as a primary residence, CGT applies at either long-term or short-term rates depending on the length of ownership.

Gains on properties held for at least a year qualify for preferential long-term rates: 0% for taxpayers in lower income brackets, 15% for those in the middle range, and 20% for higher earners. As of 2025, the maximum federal capital gains rate is 20%, with an additional 3.8% Net Investment Income Tax applying to high-income taxpayers — bringing the combined top rate to 23.8%. Properties held for less than a year attract short-term CGT, taxed at ordinary income rates of up to 37%.

Capital gains liabilities may also be increased by state taxes, as several states — including California and Oregon — treat capital gains as regular income, which can meaningfully add to the overall tax bill.

Practical example (as of 2025): A single homeowner acquires a property for $350,000, occupies it as their primary residence for three years, and sells it for $650,000, realising a $300,000 gain. After the $250,000 exclusion is applied, only $50,000 remains taxable. At the 15% long-term rate, the federal CGT owed would be $7,500, before any applicable state tax. A married couple facing the same scenario would owe no federal CGT at all, since the entire $300,000 gain falls within the $500,000 exclusion.

When a non-resident sells US property, the Foreign Investment in Real Property Tax Act (FIRPTA) obliges the buyer to withhold 15% of the gross sale price and forward it to the IRS. The non-resident then files a US tax return to reconcile that withholding against their actual CGT liability. Always seek specialist guidance from a US tax professional if you are a non-resident selling US real estate.

Are there annual property taxes in the United States?

Yes — annual property taxes are a fundamental and unavoidable aspect of owning real estate in the US. In contrast to countries like Australia, where land tax is largely a state-level charge applied mainly to investment properties, or many European nations where annual property taxes remain modest, US property taxes are substantial and serve as the primary funding mechanism for local schools, emergency services, and public infrastructure.

Property taxes are collected by cities, counties, and school districts throughout every state. They are recurring annual charges determined by the assessed value of your home or land, and they can have a meaningful impact on your monthly housing expenses. Your local tax assessor calculates what you owe by assigning an assessed value to your property and applying a mill rate — a tax rate expressed in thousandths of a dollar.

The average annual residential property tax bill across the 87 million owner-occupied homes in the US stood at $4,271 in 2024, representing an increase of roughly 4% over 2023, according to analysis by the NAHB Economics team using data from the 2024 American Community Survey. The average effective property tax rate nationally was $8.88 per $1,000 of home value, or approximately 0.89%.

The variation between states is considerable. New Jersey homeowners faced the highest average real estate tax bills at $9,767 per home, while West Virginia homeowners paid the least at an average of $1,044. Illinois recorded the highest effective property tax rate at $17.93 per $1,000 of home value, while Hawaii had the lowest at $3.08 per $1,000.

A range of exemptions can help reduce annual bills. Homeowners using a property as their primary residence may qualify for a homestead exemption, which can lower the assessed value, apply a fixed deduction, or restrict how sharply the assessment can rise from year to year. Additional relief is commonly available to senior citizens, military veterans, and individuals with disabilities. Claiming these exemptions typically requires submitting an application to your local tax assessor along with documentation proving eligibility.

Property taxes are also generally deductible on your federal return, although the deduction for state and local taxes (SALT) is currently limited to $10,000 per year for federal purposes under the 2017 Tax Cuts and Jobs Act. Verify current rules with the IRS Publication 530.

How is rental income from property taxed in the United States?

Rental income derived from US property is taxable in the United States regardless of whether the owner lives in the country or abroad. For US residents and citizens, net rental income is added to their total ordinary income and taxed at federal rates ranging from 10% to 37% depending on their overall income level, plus any applicable state income tax. Landlords report rental income and expenses on Schedule E (Form 1040).

Landlords are permitted to deduct a wide variety of expenses against rental income before calculating their tax liability. Allowable deductions include mortgage interest, property taxes, insurance premiums, repair and maintenance costs, property management fees, advertising expenses, and depreciation. Depreciation is particularly advantageous: residential rental property is generally depreciated on a straight-line basis over 27.5 years, producing a significant annual deduction even when the property itself is appreciating in value.

For non-residents, the default treatment is a flat 30% withholding tax applied to gross rental income. However, non-residents may elect to be taxed instead on their net income — that is, income after deductible expenses — at the same graduated rates applicable to US residents, by filing a US tax return. This election is almost always more tax-efficient. Non-residents receiving US rental income must obtain an Individual Taxpayer Identification Number (ITIN) from the IRS and submit an annual return (Form 1040-NR).

Short-term rental income — such as that generated through platforms like Airbnb or Vrbo — is treated as rental income for tax purposes. Special rules apply, however, when the owner also uses the property personally. Renting out a home for fewer than 15 days in a year generally means that rental income is federal-tax-free. If the owner uses the property personally for more than 14 days or more than 10% of the days it is rented out, the IRS treats it as a personal or vacation home and restricts the deductions that can be claimed. Short-term rentals may also be subject to local occupancy taxes and registration requirements, which differ widely across cities and counties — always check with your local authority before listing a property.

Where rental expenses exceed rental income, producing a loss, landlords can in general only offset those losses against other passive income. An exception applies for those who “actively participate” in managing the rental: if your adjusted gross income is below $100,000 (as of 2025), you may be able to deduct up to $25,000 of rental losses against ordinary income. Consult the IRS website or a qualified tax adviser for full details.

Does inheritance tax apply to property in the United States?

The United States imposes a federal estate tax — rather than an inheritance tax — on the aggregate value of a deceased person’s estate once it exceeds a specified threshold. As of 2025, the federal estate tax exemption stands at $13.99 million per individual, meaning the tax affects only the largest estates. The top federal estate tax rate on amounts above the threshold is 40%.

Property transferred to a surviving spouse who holds US citizenship is generally entirely exempt from federal estate tax under the unlimited marital deduction. This automatic exemption does not extend to non-citizen spouses, though a Qualified Domestic Trust (QDOT) can be used as a mechanism to defer the tax in those circumstances.

A notable feature of US inheritance law is the “stepped-up” cost basis: when a beneficiary inherits property, their tax basis in that property is reset to its fair market value on the date of the original owner’s death. If the beneficiary subsequently sells the property, they are liable for CGT only on any appreciation that occurred after the date of inheritance — not on the full historic gain. This represents a meaningful advantage compared to many other tax systems worldwide.

The current federal exemption is provisionally set to fall to approximately $7 million (adjusted for inflation) after the close of 2025, when relevant provisions of the Tax Cuts and Jobs Act are scheduled to expire, unless Congress legislates to extend them. Always verify the prevailing threshold with the IRS estate tax page or a qualified US tax adviser.

Six US states additionally impose their own state-level inheritance taxes — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — and several others maintain separate state estate taxes with lower thresholds than the federal exemption. The rules in each jurisdiction differ; some exempt transfers to close family members entirely. Where property is situated in one of these states, both state and federal taxes could apply.

For non-residents who hold US real estate, federal estate tax applies to US-sited property — but the exemption available to non-residents is only $60,000 (as of 2025), far below the multi-million dollar threshold accessible to US citizens and permanent residents. The US has estate tax treaties with a number of countries — including Australia, France, Germany, Japan, and the UK — that may mitigate or eliminate this exposure. Non-residents with US property in their estate should always seek specialist advice.

Does gift tax apply to property transfers in the United States?

Yes — the United States has a federal gift tax that covers the transfer of property, including real estate, made by a living person. The gift tax exists to prevent individuals from circumventing the estate tax by distributing assets prior to death. The gift and estate tax frameworks are unified: sizeable taxable gifts made during your lifetime reduce the estate tax exemption available at the time of your death.

As of 2025, the annual gift tax exclusion stands at $19,000 per recipient per year, up from $18,000 in 2024. An individual may give any number of recipients up to $19,000 each per year without any gift tax liability or reporting requirement arising. Married couples may combine their exclusions to gift $38,000 per recipient annually. Gifts exceeding these annual thresholds must be reported to the IRS on Form 709 and are applied against the donor’s lifetime federal gift and estate tax exemption of $13.99 million (as of 2025).

When property is gifted rather than sold at market value, the recipient generally takes over the donor’s original cost basis in the property rather than receiving a stepped-up basis. This is a critical distinction from inheritance, and it means the recipient may face a larger CGT exposure if they later sell the property. Always consult a qualified US tax professional before transferring real estate as a gift.

Gifts to a non-citizen spouse benefit from a separate annual exclusion of $190,000 as of 2025 (adjusted annually for inflation). Outright gifts between citizen spouses are fully exempt under the unlimited marital deduction. Refer to the IRS gift tax FAQ for the most current figures.

Are there any tax advantages or incentives for buying property in the United States?

The US tax code provides several valuable incentives for property owners, particularly those who occupy their home and those who invest in rental real estate. The most significant are outlined below:

• Mortgage interest deduction: Owner-occupiers can deduct interest paid on mortgage loans of up to $750,000 (as of 2025, under the 2017 Tax Cuts and Jobs Act) secured against a primary or second residence. This deduction is claimed on Schedule A (Form 1040) and benefits taxpayers who itemise their deductions rather than claiming the standard deduction.
• Property tax deduction: Property taxes are generally deductible on your federal return, though the SALT deduction is capped at $10,000 per year.
• Primary residence CGT exclusion: The exclusion allows qualifying homeowners to exclude up to $250,000 — or $500,000 for married couples filing jointly — of capital gains from the sale of their principal home, making it one of the most generous home-sale tax reliefs available anywhere in the world.
• 1031 (Like-Kind) Exchange: Property investors can defer capital gains taxes by reinvesting the proceeds from the sale of one investment property into a replacement investment property within 180 days of the original sale. This is a powerful strategy for building a real estate portfolio without triggering immediate tax, though strict rules and time limits apply.
• Depreciation deductions for rental property: Residential rental property is depreciated over 27.5 years, generating a substantial annual deduction that can be set against rental income.
• Energy efficiency credits: The residential clean energy credit rate for property placed in service between 2022 and 2025 is 30% for qualifying improvements such as solar panels, geothermal heat pumps, and battery storage systems. The energy efficient home improvement credit is available for property placed in service through 31 December 2025 and covers items including insulation, windows, and heat pumps — though these credits are currently scheduled to expire. Check the latest position at IRS Publication 530.
• Opportunity Zones: Investors who direct capital gains into Qualified Opportunity Zone Funds may defer and potentially reduce their CGT liability. These funds channel investment into federally designated low-income areas across the country. The rules are complex — specialist advice is recommended.

No federal first-time buyer tax credits are currently in effect (a federal first-time homebuyer tax credit was available between 2008 and 2010 but has since lapsed), though many state and local housing finance agencies run assistance programmes for first-time purchasers. Check with your state’s housing finance agency to find out what is currently on offer.

Do different rules apply to foreign buyers or non-residents purchasing property in the United States?

No federal law bars foreign nationals or non-residents from acquiring real estate in the United States. However, non-residents are subject to a range of additional compliance obligations and tax considerations that do not apply to US residents.

The most consequential federal rule for non-residents is the Foreign Investment in Real Property Tax Act (FIRPTA). Under FIRPTA, whenever a non-resident alien sells US property, the buyer must withhold 15% of the gross sale price and remit that amount to the IRS. This is a withholding mechanism rather than a supplementary tax — after the sale, the non-resident files a US tax return to reconcile the withheld amount against their true CGT liability. If the actual tax due is less than 15%, the difference is refunded.

Non-residents who collect rental income from US property must obtain an Individual Taxpayer Identification Number (ITIN) from the IRS and file an annual US return (Form 1040-NR). They may elect to be taxed on net rental income at graduated rates in place of the default 30% withholding on gross income — an election that is almost always more tax-efficient.

As discussed in the inheritance section above, the federal estate tax exemption for non-residents owning US-sited property is only $60,000, compared with $13.99 million for US citizens and residents as of 2025. This disparity creates significant estate planning risk for non-residents holding US real estate. Holding the property through a foreign corporation or trust may provide some mitigation, but the applicable rules are intricate and expert guidance is essential.

At the state level, an increasing number of jurisdictions have introduced restrictions on property purchases by foreign nationals — particularly those with ties to certain foreign governments. Several states now limit or prohibit agricultural land acquisitions by nationals of China, Russia, Iran, North Korea, Cuba, Venezuela, and various other named countries. These regulations are developing quickly, so always verify current state-level restrictions with a local real estate attorney before proceeding.

Non-residents should also be aware that the US has concluded tax treaties with a broad range of countries that may alter their US tax obligations. A comprehensive list of these treaties is available at irs.gov. For any property transaction involving a non-resident, professional advice from a US tax attorney or CPA with international expertise is strongly recommended.

Frequently asked questions: property taxes in the United States

Do I have to pay any tax just for owning property in the US as a non-resident?

Yes. Annual property taxes are imposed by the local county or municipality on every owner of US real estate, regardless of where that person resides. You will receive a property tax bill from the county in which the property sits, usually one or two times each year. If you additionally receive rental income from the property, you will need to file a US tax return. Speak with a US tax adviser for guidance tailored to your situation.

Is there a federal property purchase tax in the US?

No. The United States does not have a federal stamp duty or property purchase tax. Transfer taxes are applied at the state and local level, and certain states do not charge them at all. Total buyer closing costs — encompassing transfer taxes, title insurance, and associated fees — generally fall within the range of 2%–5% of the purchase price, though the precise figure depends on the state and the specifics of the transaction.

How often are property tax assessments updated?

Reassessment schedules vary considerably between states — some reassess every year, while others only revisit valuations when a property is sold or substantially renovated. Certain states also apply caps limiting the extent to which assessed values can rise in any given year. Contact your local county assessor’s office to understand how frequently reassessments occur in your area.

Can I appeal my property tax assessment if I think it is too high?

Yes. Property owners have the right to challenge their assessment if they consider it to be inflated. The appeals procedure varies by state and county but typically requires lodging a formal objection with the local tax assessor or an independent appeals board within a specific deadline, supported by evidence such as comparable property sales data. Your county assessor’s office can explain the exact process and applicable deadlines.

Will I owe US tax on rental income if I live abroad?

Yes. Rental income arising from property situated in the United States is subject to US taxation irrespective of the owner’s country of residence. Unless an election is made, 30% is withheld from gross rental income by default. Filing a US tax return (Form 1040-NR) to be taxed instead on net income at graduated rates is generally more advantageous. Depending on the rules of your country of residence and any applicable tax treaty, you may also have reporting obligations there. Seek advice from a tax professional who is familiar with both jurisdictions.

Are there any states with no property transfer tax?

According to PropertyShark, around 15 states do not levy a real estate transfer tax at the state level. However, the absence of a state-level charge does not guarantee you will pay nothing — local governments within those states may still impose their own transfer taxes. Always confirm the position for the specific city and county in which you intend to purchase.

Does the US have a wealth tax on property?

No federal wealth tax exists in the United States. Annual property taxes are calculated on the assessed value of the real estate concerned, not on an owner’s total net worth. Although wealth tax proposals have periodically been raised in political debate, none has been enacted at the federal level. Some states do tax certain categories of personal property, such as vehicles, but this is a distinct concept from a wealth tax on real estate.

What is FIRPTA and how does it affect me as a non-resident seller?

FIRPTA — the Foreign Investment in Real Property Tax Act — obliges the buyer of US real estate to withhold 15% of the gross sale price when the seller is a non-resident alien and to remit that sum to the IRS. This is a withholding arrangement, not an additional tax. Once the sale is complete, the non-resident files a US tax return, and any amount withheld beyond the actual CGT owed is returned as a refund. If you are a non-resident planning to sell US property, engage a US-qualified tax professional well before the transaction takes place. Further information is available at irs.gov/firpta.