If youโre buying property in the USA, getting to grips with how US taxes actually work can save you thousands and prevent unwelcome surprises once you own.
If youโve spent time in the US, youโve probably already noticed the small differences โ like the price on the shelf not matching what you pay at the checkout. When you go from visiting to owning property, those differences become far more important. The US tax system operates across federal, state and local levels, and what you pay can vary significantly depending on exactly where you buy. From property taxes that change by county to income and capital gains rules that affect your returns, understanding the detail early on helps you budget properly and avoid getting caught out later.
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How do US taxes work for property buyers?
The US tax system operates across three layers โ federal, state and local. Youโre likely to encounter all three when you own property, earn rental income or eventually sell.
Federal taxes apply nationwide. State and local taxes vary depending on where your property sits, sometimes even by county or city. That means two homes in neighbouring areas can carry very different tax bills.
One key point that often catches British buyers off guard is that US citizens are taxed on worldwide income, even if they live abroad. If youโre not a US citizen, your liability depends on residency status and income sources.
This layered system is what makes US taxes feel complex at first glance โ but once you break it down, it becomes manageable.
Property taxes in the USA
Property tax is one of your biggest ongoing costs as a US homeowner. Itโs set at a local level, which means rates vary widely.
In 2026, most effective property tax rates still sit broadly between around 0.25% and 2% of a propertyโs assessed value, depending on the state and county. States like New Jersey and Illinois remain at the higher end, while Hawaii and Alabama are typically lower.
For example, if you buy a $400,000 home in a higher-tax area with a 1.8% rate, you could pay around $7,200 annually. In a lower-tax state at 0.5%, that drops to $2,000.
Local authorities use this revenue to fund schools, infrastructure and emergency services, so rates often reflect the quality of local amenities.
Sales taxes and everyday costs
Sales tax is charged at the point of purchase, not included in the displayed price. This still catches out many buyers when budgeting day-to-day costs.
As of 2026:
- Most states charge sales tax between 4% and 10%
- Local taxes are often added on top
- Four states โ Delaware, Montana, New Hampshire and Oregon โ still have no state-wide sales tax
If youโre furnishing a new property, this can add a noticeable amount to your setup costs.
State income tax and rental income
If you plan to rent out your US property, income tax becomes important.
- Nine states still have no state income tax, including Florida and Texas
- Other states apply either flat rates or progressive bands
- Rental income is generally taxable in the US
On top of this, federal income tax applies, with progressive bands that in 2026 still range from 10% up to 37%, depending on your income level.
Youโll also encounter payroll-style taxes such as Social Security and Medicare if youโre earning US income. The Social Security wage base continues to rise annually (currently $184,500), so higher earners may see more of their income taxed.
Capital gains tax when you sell
When you sell a US property, capital gains tax (CGT) applies to any profit.
- Long-term gains (held over one year): typically 0%, 15% or 20%
- Short-term gains: taxed at your income tax rate
- Losses can offset gains, with up to $3,000 deductible annually against income
If youโre holding property as an investment, timing your sale can make a meaningful difference to your tax bill.
FIRPTA when you sell
If youโre buying as a non-US resident, thereโs one rule to understand before you sell โ FIRPTA (the Foreign Investment in Real Property Tax Act).
When you sell, the buyer must withhold 15% of the total sale price and pay it to the IRS. This isnโt based on your profit, but the full value of the property, which is why it can catch sellers off guard at completion.
You wonโt receive that portion of the proceeds straight away. Instead, itโs treated as an advance payment, and youโll need to file a US tax return to work out your actual liability and reclaim any excess.
There are exceptions. If the sale price is $300,000 or less and the buyer plans to use the property as their main home, the withholding may not apply. You can also apply for a reduced withholding if your final tax bill is likely to be lower.
Estate and inheritance taxes
Estate planning is especially important if youโre buying high-value property in the US.
As of 2026:
- Federal estate tax applies only above a high threshold (over $15 million per individual, adjusted annually)
- Some states also charge estate tax
- A smaller number impose inheritance tax on beneficiaries
For most buyers, this wonโt be an immediate concern, but if youโre building a portfolio or planning long-term ownership, itโs worth structuring correctly early on.
How tax varies by state
Your choice of state has a direct impact on your overall tax exposure. Hereโs a simplified comparison:
| State | Property tax (typical) | State income tax |
|---|---|---|
| Florida | ~0.9% | 0% |
| Texas | ~1.8% | 0% |
| California | ~0.7% | Up to ~13% |
| New York | ~1.2% | Up to ~10% |
This is why many overseas buyers look closely at states like Florida โ not just for lifestyle, but for tax efficiency.
Practical tips before you buy
Before committing to a US property, take time to:
- Check the exact property tax rate by zip code
- Factor in sales tax on furnishings and renovations
- Understand rental income obligations
- Speak to a cross-border tax adviser
Even small differences in location can have a long-term impact on your returns.
FAQ on US taxes
It depends on your income, location and circumstances. Federal income tax ranges from 10% to 37%, with additional state taxes in many areas. Property, sales and capital gains taxes may also apply.
On $100,000 income, a typical federal tax bill might fall between roughly $14,000 and $22,000 depending on filing status and deductions. State taxes could add anywhere from 0% to around 10% depending on where you live.
It varies. The US often has lower income tax at moderate earnings, especially in states with no income tax. However, property taxes and healthcare costs can be higher, so your overall outgoings may not always be lower than in the UK.
