Guide to Property Taxes in the United States

Nonresident alien individuals are generally subject to U.S. federal income tax on U.S.-source income, including income derived from real estate located in the United States.

For Form 1040-NR purposes, the principal individual filing statuses available to nonresident aliens are generally Single and Married Filing Separately, with limited availability of Qualifying Surviving Spouse status. A nonresident alien generally cannot use Head of Household status.

A married nonresident alien generally cannot file a joint return. However, an important exception can apply where the nonresident is married to a U.S. citizen or resident and elects to be treated as a U.S. resident for tax purposes.

Rental Income Tax

Rental income from U.S. real estate received by a nonresident alien is generally subject to one of two federal tax treatments.

Gross-income method: If the rental income is not effectively connected with a U.S. trade or business, it is generally treated as FDAP income and taxed at 30% of gross rental income, unless a lower treaty rate applies. Expenses cannot generally be deducted under this method.

Net-income election: A nonresident owner of U.S. income-producing real estate can generally elect under IRC Section 871(d) to treat the rental income as Effectively Connected Income (ECI). The landlord can then deduct qualifying expenses attributable to the property and pay federal income tax on the resulting net taxable rental income at the ordinary graduated federal rates.

Deductible rental expenses can generally include qualifying property taxes, insurance, management fees, repairs, maintenance, depreciation and mortgage interest, subject to the applicable U.S. tax rules and limitations.

For many leveraged or expense-intensive real-estate investments, the net-income election can produce a substantially different tax result from the default 30% tax on gross rent.

Rental Income Tax Examples

For a nonresident individual who elects to treat U.S. real-estate rental income as effectively connected income under IRC Section 871(d), qualifying rental expenses can be deducted and the resulting net income is taxed at the ordinary federal graduated income-tax rates.

Assuming deductible operating expenses equal to an illustrative 30% of gross rental income, annual gross rents of $18,000, $72,000 and $144,000 produce taxable rental income of $12,600, $50,400 and $100,800, respectively.

Using the 2026 federal income-tax brackets for a single individual, the resulting federal income-tax liabilities are approximately $1,264, $5,800 and $16,888. This represents effective federal tax rates of approximately 7.0%, 8.1% and 11.7% of gross rental income, respectively.

Without the Section 871(d) election, ordinary U.S. real-property rental income of a nonresident alien is generally subject to 30% federal tax on gross rental income, unless reduced by an applicable tax treaty. This would instead produce taxes of $5,400, $21,600 and $43,200 at the three income levels.

These calculations cover federal income tax only. Any applicable state income tax would be additional and depends on the state in which the property is located.

Federal Income Tax – 2026

Effectively connected taxable income of a nonresident alien is generally subject to the ordinary federal graduated income-tax rates.

For 2026, the rates for a single individual are:

For a married nonresident filing separately, the same brackets apply through $256,225, after which the 35% and 37% thresholds differ.

Nonresident aliens generally cannot claim the standard deduction. A limited exception exists for certain eligible students and business apprentices from India under the U.S.-India income tax treaty.

The former personal exemption should not be used as a general deduction in the rental-income calculation.

State Income Tax

State taxation is separate from federal taxation and depends on the state in which the property is located.

Most states impose an individual income tax and can tax a nonresident on income sourced to that state, including rental income from property located there. State tax rates and allowable deductions vary considerably.

For 2026, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming do not impose a broad-based individual income tax.

Example – New York State

A nonresident individual owning rental property in New York can be subject to New York State income tax on New York-source rental income, in addition to federal income tax.

New York uses progressive individual income-tax rates. The taxpayer's total income can be relevant in determining the applicable rate even though the nonresident is ultimately taxed by New York on the portion attributable to New York sources.

Additional local taxation can depend on the taxpayer's circumstances and residence status.

Federal Capital Gains Tax – U.S. Real Estate

The general rule concerning nonresident aliens being subject to U.S. tax on certain U.S.-source capital gains when physically present in the United States for 183 days or more should not be used as the principal rule for U.S. real estate.

Sales of U.S. real property by foreign persons are instead specifically governed by the Foreign Investment in Real Property Tax Act (FIRPTA).

Under FIRPTA, gain or loss from the disposition of a U.S. real property interest by a foreign person is generally treated as income effectively connected with a U.S. trade or business and is therefore subject to U.S. federal income tax.

In addition, the purchaser is generally required to withhold 15% of the amount realized (generally the gross selling price) and remit it to the IRS.

The 15% FIRPTA withholding is not the final capital-gains tax rate. It is generally an advance withholding against the seller's actual U.S. federal income-tax liability. The foreign seller files the appropriate U.S. tax return to calculate the actual taxable gain and claim credit for the amount withheld.

Certain exceptions and reduced withholding rules can apply, including particular transactions where the purchaser acquires the property for use as a residence.

State Capital Gains Tax

State taxation of real-estate gains varies considerably.

Many states include taxable real-estate gains in state taxable income and apply their ordinary individual income-tax rates or other state-specific rules. Consequently, the state tax burden depends on where the property is located.

Corporate Taxation

A U.S. C corporation is generally subject to federal corporate income tax at a flat 21% rate on taxable income, including taxable rental profits and capital gains.

State corporate income taxes can apply in addition to the 21% federal tax, with rates varying by state.

A foreign corporation conducting a U.S. trade or business can generally be subject to U.S. federal corporate income tax on its effectively connected taxable income. Additional international tax provisions, including the branch profits tax, can also apply to a foreign corporation investing directly in U.S. real estate.

Property Buying and Selling Taxes/Costs

Other Property Taxes

Real Estate / Property Tax

The United States does not impose a federal annual real estate property tax.

Instead, annual property taxes are imposed primarily by state and local governments, including counties, cities, municipalities, school districts and other local taxing authorities.

Property-tax rates, assessment methods, exemptions and taxable values therefore vary significantly depending on the location of the property. Taxes are generally calculated by applying the applicable local tax rate to the property's assessed or taxable value, which may differ substantially from its current market value.

Consequently, there is no single nationwide U.S. property-tax rate that can be applied to real-estate investments.

Example – New York City

New York City imposes an annual Real Property Tax on real estate located within the city. Properties are divided into four tax classes:

• Class 1: Primarily one-, two- and three-family homes and certain small residential properties.

• Class 2: Primarily residential properties not included in Class 1, including most rental buildings, cooperatives and condominiums.

• Class 3: Utility property.

• Class 4: Commercial and industrial property and other property not included in the first three classes.

New York City determines a property's market value and then calculates an assessed value according to the applicable property class. The target assessment ratio is generally 6% of market value for Class 1 and 45% for Classes 2, 3 and 4, although assessment caps and other valuation rules can result in taxable assessed values that differ from these simple percentages.

The applicable property-tax rate is then applied to the property's taxable assessed value, after taking account of any applicable exemptions.