3 Home Taxes Everyone Should Know

Make sure you budget for these when dabbling in real estate!

August 17, 2025 • Estimated Reading Time: 7 minutes

🏠 Be aware of these 3 taxes when working with real estate

Summary

The below article will discuss the basics of property taxes, capital gains taxes and transfer taxes. TLDR; property taxes are paid every year and are subject to the value of your home(s). Capital gains are paid during the sale of the home when the present value of the home exceeds the home’s purchase price in the past. Transfer taxes are paid by either buyers or sellers during the sale of a home.

Property Taxes

Property taxes are the primary tax burden for homeowners in the United States. They're levied by local governments such as counties, cities, or school districts, and they help fund essential services like schools, roads, and public safety. These taxes are based on the assessed value of the home and land.

Property taxes vary widely by location, typically averaging around 1% of the property's value, but ranging from 0.5% in low tax areas upwards to over 2% in high tax states like New Jersey and Illinois. Homeowners often pay these taxes annually or semi-annually, and these taxes are frequently paid through monthly mortgage payments. States like California cap property tax increases under Proposition 13, while exemptions such as the Homestead Exemption or Senior Discounts may reduce the tax burden in some areas.

But to give you an idea of how much property taxes impact the average homeowner, let's take a look at some of the numbers.

In 2025, the median home price in America was $416,900.

Since the average property tax rate in the United States is around 1%, we can calculate the average property taxes paid by homeowners in the US. By multiplying $416,900 by 1%, we get a $4,169 property tax payment for 2025.

So on average, that is what homeowners are paying every single year for property taxes in the United States.

Many people do not like property taxes because they can feel almost like rent payments to the government, which acts like a landlord. Not all countries and territories have property taxes. For example, the Cayman Islands, Fiji and Malta do not levy property taxes. Just imagine how nice it would be to own rental real estate without having to pay the government property taxes. On the flip side, consider your state benefits that might be lost without property taxes. Weigh the cost benefit, and then formalize an opinion on property tax.

Capital Gains on Homes

When selling a home for a profit, homeowners may owe capital gains taxes on the profit, which is the difference between the sales price and the original purchase price.

So let's say for example, you purchased a home for $500,000 and you sell it eight years later for $1 million. Your capital gain would be $500,000.

So if you lived in the home as your primary residence for at least two out of the last five years of ownership, you can exclude up to $250,000 of the capital gain from taxation if you're single. Now, if you're married, this goes to $500,000 when filing a joint tax return. This can be found in Topic 701 that the IRS published.

It’s important to note that some states impose their own capital gains taxes with rules differing by jurisdiction. Always consult local regulations and tax professionals when selling a property to understand the obligations.

Now, when it comes to capital gains taxes, it's extremely relevant to determine whether your capital gains are short-term or long-term. Short-term capital gains are taxed at ordinary income tax rates, so they're taxed at the same rates as income from a W2 job or a 1099 business. This can go as high as 37%. Short term capital gains are capital gains for assets that are held for less than one year.

For long term capital gains tax rates, the tax treatment is generally better. If you hold your property for more than one year before selling, you can face significantly lower capital gains tax rates.

Transfer Taxes

In certain areas, homeowners pay transfer taxes when buying or selling a property calculated as a percentage of the sales price. This typically ranges between 0.1% all the way up to 2% depending on where you live. These taxes fund local government operations, but are not universal. In fact, states like Texas and Florida often don't impose them, while other states like New York and California may have significant rates depending on the city or county you live in.

The responsibility for paying transfer taxes may fall on the buyer, the seller, or both, depending on local customs and negotiations during the sale. For first time home buyers, be sure to inquire about transfer fees in your state and city and get a solid understanding of who is going to pay those fees.

🔥 The Buffett Effect

Shares of UnitedHealth Group (UNH) opened as high as 13% on Friday, 8/15 after Warren Buffett’s Berkshire Hathaway group announced a new position with the health care insurer. Buffett revealed a stake of 5 million shares or about $1.6 billion at the time of purchase. While $1.6 billion is still less than 1% of Buffett’s net worth, the move represents a big vote of confidence in UNH for investors.

Other notable positions opened recently with UNH include Michael Burry, the investor made famous for his ‘Big Short’ during the ‘08 financial crisis. David Tepper, from Appaloosa Management also disclosed a new position with UNH this quarter as well

Did You Know?

🍦 Warren Buffett eats like a kid — and he’s proud of it.

Buffett has said that he gets about a quarter of his daily calories from Coca-Cola and often starts his mornings with a can of Coke and a bowl of ice cream. His reasoning? “I checked the actuarial tables, and the lowest death rate is among six-year-olds. So I decided to eat like a six-year-old.” 😄

Till next time,

Tax Hacks

^{The content provided in this newsletter is for informational purposes only and is not intended to be, and should not be construed as, professional tax, legal, or financial advice. While we strive to ensure accuracy, tax laws are complex and subject to change. Always consult with a qualified tax professional or financial advisor regarding your specific situation before making any decisions based on the information provided herein.}

3 Home Taxes Everyone Should Know

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