Own Luxury Homes®
How Property Taxes Work When Buying a House 2026
3 events: closing proration + fund escrow 2–6 months; ongoing 1/12 monthly; post-purchase assessment resets to purchase price in most states. Rates: Hawaii 0.28% ($93/mo on $400K) to NJ 2.47% ($823/mo); national avg 1.07%. 14-state table with annual cost, monthly escrow, homestead exemption notes. Homestead exemption: file immediately after closing; $2K–50K+ off taxable value. California Prop 13: 2%/yr cap; no full reset at sale. Own Luxury Homes® 12-Point Agent Integrity Audit™ — total cost analysis.
How Property Taxes Work When You Buy a House: The Proration, the Escrow, and the Reset Most New Buyers Don’t See Coming
The direct answer: Property taxes affect new buyers in three ways: (1) At closing — you fund an escrow account with 2–6 months of estimated taxes; (2) Ongoing — your lender collects 1/12 of the annual estimate each month and pays the bills; (3) After purchase — in most states, assessed value resets to your purchase price, potentially raising your tax bill significantly above what the prior owner paid. The homestead exemption can save $500–1,500+/year — but you must file after closing.
Property Tax by State: $400,000 Home Annual Cost
| State | Effective Rate | Annual on $400K | Monthly | Homestead Exemption Note | |||||
|---|---|---|---|---|---|---|---|---|---|
| Hawaii | 0.28% | $1,120 | $93 | Basic: $100K value reduction | |||||
| Alabama | 0.40% | $1,600 | $133 | $4,000 assessed value reduction | |||||
| Tennessee | 0.66% | $2,640 | $220 | $25,000 assessed value reduction | |||||
| Colorado | 0.51% | $2,040 | $170 | $15,000 actual value reduction | |||||
| Florida | 0.89% | $3,560 | $297 | Up to $50,000 off; saves $500–1,000+/yr — FILE IMMEDIATELY | |||||
| North Carolina | 0.82% | $3,280 | $273 | Varies by county | |||||
| Georgia | 0.91% | $3,640 | $303 | $2,000 standard + local additions | |||||
| Indiana | 0.85% | $3,400 | $283 | $45,000 off assessed value | |||||
| California | 0.76% | $3,040 | $253 | $7,000 off assessed; Prop 13 caps annual increase at 2% | |||||
| Michigan | 1.48% | $5,920 | $493 | Principal residence exemption: ~18% school tax reduction | |||||
| Ohio | 1.53% | $6,120 | $510 | 2.5% rollback; homestead for qualifying owners | |||||
| Texas | 1.60% | $6,400 | $533 | 20% off assessed + school district exemption; saves $800–1,500/yr — FILE IMMEDIATELY | |||||
| New York | 1.67% | $6,680 | $557 | STAR exemption; varies by county | |||||
| New Jersey | 2.47% | $9,880 | $823 | Homestead benefit; modest reduction | |||||
| Rates are state averages; your specific county may differ significantly. Always verify with the county assessor before closing. Homestead exemptions require active application — not applied automatically. File as soon as allowed after closing. | |||||||||
“"My lender says my escrow will be $450/month but the current tax bill shows $267/month. Why?" Two likely reasons. First: the current bill reflects the prior owner's assessed value, which is probably much lower than your purchase price. In most states, the assessment resets when you close. Ask the county assessor: "What will my assessed value be after this purchase?" That number times the mill rate gives your real expected annual tax. Second: your lender may be including a 2-month cushion per RESPA rules. After your first annual escrow analysis (about 12 months after closing), the lender will recalculate based on actual bills received and adjust your monthly payment accordingly. If the reset creates a large escrow deficiency, you'll receive a notice with options to pay the deficiency or spread it over the next 12 months. Budget for the reset. File your homestead exemption immediately after closing to reduce the impact.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
How do property taxes work when you buy a house?
Three stages: (1) At closing: seller credits buyer for taxes accrued (proration); buyer funds escrow: 2–6 months of estimated annual taxes. (2) Ongoing: lender collects 1/12 of annual estimate each month; pays tax bills from escrow when due; annual analysis adjusts monthly payment. (3) Post-purchase: assessed value resets to purchase price in most states; expect significant increase if prior owner had old low assessment. Homestead exemption: file immediately after closing; reduces taxable value $2,000–50,000+ depending on state. California: Prop 13 limits annual increases to 2%; no full reset at sale. Rates: 0.28% (Hawaii; $93/mo on $400K) to 2.47% (NJ; $823/mo). Always verify specific county rate and expected post-purchase assessment.
Own Luxury Homes® — total cost analysis on every buyer consultation. 12-Point Agent Integrity Audit™. Get a property tax consultation ›
"The introduction Own Luxury Homes® makes is to a specialist with documented closing history in your specific market — not the county, not the metro, the submarket you're actually selling or buying in. That's the standard we verify before your name goes anywhere."
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)