Expect your property tax on a new home purchase to be higher than what the seller was paying, often significantly so. Local assessors typically reset a home’s assessed value to the purchase price when it changes hands, which wipes out years of capped valuation growth the previous owner benefited from. On the federal side, property taxes paid on a primary residence are deductible up to $40,400 for most filers in 2026, a meaningful jump from the $10,000 cap that applied through 2024.1Office of the Law Revision Counsel. 26 USC 164 – Taxes
Why Your Bill Will Likely Be Higher Than the Seller’s
Most jurisdictions cap how much an assessed value can grow year over year. That protection is valuable for long-term owners, but it almost always resets when the property is sold. A seller who owned the home for fifteen years may have been paying taxes on a value far below what the home is actually worth today. When you buy at current market price, the assessor typically uses that price as the new baseline.
This is the single biggest reason new buyers get surprised by their tax bill. The listing agent may have quoted the seller’s annual figure during your home search. That number tells you almost nothing about what you’ll owe. Assessors review recorded deeds to identify ownership changes and trigger reassessments, and the new value they assign becomes the starting point for future annual adjustments, capped or not, until the next sale.
If the assessor decides the purchase price doesn’t reflect true market conditions, say the sale was between family members or involved unusual concessions, they may rely on comparable neighborhood sales instead. Either way, you’ll receive a notice of the new assessed value with information about how to appeal.
What You Pay at Closing
Tax Proration Between You and the Seller
Property taxes get split at closing so each side pays only for the days they actually owned the home during the current tax year. The settlement agent handles the math and shows it as a line item on your closing disclosure.
How this works depends on whether your area bills in arrears or in advance. Arrears billing is more common: you pay for the tax year after it ends. On closing day, the seller owes taxes for months they lived in the home but haven’t yet been billed for, so they credit you for those days, and you use that credit to pay the full bill when it arrives. In advance billing, the seller may have already paid taxes that extend past closing, so you reimburse them for the post-closing portion.
If the seller has delinquent taxes from prior years, the settlement agent typically deducts that amount from the seller’s proceeds before the sale goes through. Unpaid property taxes create a lien that would otherwise cloud your title.
Transfer Tax
Roughly three dozen states charge a one-time transfer tax when real estate changes hands, sometimes called a documentary stamp tax or deed excise tax. Rates range from a fraction of a percent to over 2% of the purchase price, and about a dozen states charge nothing at all. Who pays varies by local custom and the terms of your purchase agreement: seller in some places, buyer in others, negotiable in many. Your settlement agent calculates the amount and includes it on the closing disclosure. It isn’t the same as property tax, but it’s a government charge tied to the purchase, so budget for it.
Watch for a Supplemental Bill After Closing
In certain states, most notably California, new homeowners receive a separate “supplemental” tax bill a few months after closing. It covers the gap between what the prior owner was paying under the old assessed value and the higher taxes triggered by your reassessment, prorated from your purchase date through the end of the current fiscal year. It’s a one-time catch-up.
These bills catch buyers off guard because mortgage lenders generally don’t include them in escrow calculations. You pay the county tax collector directly. Late penalties in jurisdictions that issue these bills are commonly around 10% of the overdue amount. If you bought in a state with this system, treat the supplemental bill as a post-closing expense separate from your regular annual taxes.
How Escrow Handles Property Taxes Going Forward
Most mortgage lenders require an escrow account for property taxes and homeowners insurance. The lender estimates your annual tax bill, divides by twelve, and adds that amount to your monthly mortgage payment. When taxes come due, the lender pays them from the escrow balance.
Federal law limits how much a lender can collect. Each monthly deposit cannot exceed one-twelfth of estimated annual taxes and insurance, and the lender can hold a cushion of no more than one-sixth of the total estimated annual disbursements, or roughly two months’ worth.2Office of the Law Revision Counsel. 12 USC 2609 – Limitation on Requirement of Advance Deposits in Escrow Accounts Surpluses of $50 or more must be refunded within 30 days.3eCFR. 12 CFR 1024.17 – Escrow Accounts When a tax rate increase creates a shortage, the lender spreads the difference across future monthly payments, and your total mortgage payment goes up accordingly.
Escrow isn’t always mandatory. Conventional loan servicers can approve a waiver if your loan balance is below 80% of the home’s original appraised value and you have no recent payment delinquencies.4Fannie Mae. Administering an Escrow Account and Paying Expenses FHA and VA loans generally require escrow regardless of equity. If you waive it, you’re on the hook for tracking due dates and paying the tax collector yourself.
Apply for a Homestead Exemption
Most states offer a homestead exemption that reduces the taxable value of your primary residence. Savings range from a few thousand dollars off the assessed value to as much as a 50% reduction, depending on where you live. You typically must own the home, occupy it as your primary residence, and file an application with your local assessor within a set window after purchase.
The exemption does not transfer from the previous owner. A new purchase resets it, and you have to apply fresh. Many jurisdictions also offer enhanced exemptions:
- Seniors 65 and older: larger exemption amounts or frozen assessments in many states.
- Disabled veterans: partial to full exemptions depending on the VA disability rating, often requiring a 100% rating for a complete exemption.
- Low-income homeowners: reduced assessments or tax credits tied to household income.
Deadlines matter. In most jurisdictions, missing the application window means waiting a full year for the exemption to take effect. Check with your county assessor’s office soon after closing to find out what you qualify for and when to apply.
Deducting Property Taxes on Your Federal Return
You can deduct property taxes paid on your primary residence, but only if you itemize on Schedule A instead of taking the standard deduction.5Internal Revenue Service. Instructions for Schedule A (Form 1040) For many new buyers, the combination of mortgage interest and property taxes pushes them over the standard deduction threshold for the first time.
Property tax falls under the state and local tax (SALT) umbrella, along with state income taxes and state sales taxes. For 2026, the combined SALT deduction is capped at $40,400 for most filers and $20,200 for married individuals filing separately.1Office of the Law Revision Counsel. 26 USC 164 – Taxes If your modified adjusted gross income exceeds $500,000 ($250,000 for married filing separately), the cap phases down and can drop as low as $10,000.5Internal Revenue Service. Instructions for Schedule A (Form 1040)
One detail trips up new buyers. You can only deduct taxes actually paid to the taxing authority during the year, not the full amount on the bill. If your lender pays from escrow, deduct only what the lender actually disbursed. The prorated amount you credited to the seller at closing counts as a tax payment by you, and it’s deductible for the year of purchase.
Appealing the Assessment
If the new valuation seems too high, you can challenge it, and most homeowners can do so without hiring a lawyer. Common grounds for a successful appeal include:
- Factual errors in the assessor’s records: incorrect square footage, wrong bedroom or bathroom count, inaccurate lot size, outdated construction details.
- Comparable sales of similar homes nearby that closed at lower prices than the value assigned to your property.
- Condition issues like structural problems or needed repairs that reduce market value below what the assessor assumed.
Start with an informal call to the assessor’s office. A simple data correction sometimes resolves the issue on the spot. If it doesn’t, you file a formal appeal with the local board of review or equalization, which holds a hearing.
Deadlines are strict. Most jurisdictions give you 30 to 90 days from the date on your assessment notice to file the initial appeal, and missing it usually means waiting for the next assessment cycle. When your notice arrives, check the appeal deadline before anything else. You can always decide not to file. You can’t get the deadline back once it passes.