Property tax, insurance and deductions in the US
What goes into a monthly payment (PITI), how property tax is set and which federal deductions exist.
Applies to: United States. Reviewed 2026-09-25.
Key takeaways
- The monthly payment often covers principal, interest, property tax and insurance through an escrow account.
- Property tax is set locally and can rise after purchase when the home is reassessed.
- Interest is deductible for itemisers on up to $750,000 of acquisition debt; the SALT cap is $40,000 for 2025–2029.
Property tax and federal deductions
Property tax is set locally on the assessed value and varies widely between states and counties. Many states have a homestead exemption for your own home, which you often must apply for.
Mortgage interest is deductible for itemisers on up to $750,000 of debt to buy, build or improve the home. The deduction for state and local taxes (SALT), including property tax, is capped at $40,000 for 2025–2029, phasing down at high incomes. From 2026 mortgage insurance premiums count as deductible interest.
Insurance
- Homeowners insurance is required by the lender.
- Flood and earthquake are normally excluded and need separate policies.
- In a condo the association insures the building; you need an HO-6 policy for the unit.
Questions to ask
- What will property tax be after reassessment at my purchase price?
Red flags
- The budget uses the seller's property tax or homestead exemption.
Sources
- Publication 936, Home Mortgage Interest Deduction (Internal Revenue Service)
- One Big Beautiful Bill provisions (Internal Revenue Service)
- FloodSmart (FEMA National Flood Insurance Program)