When purchasing a second new home in Houston, the primary tax considerations are property taxes, mortgage interest deductions, and transfer taxes. Property taxes in Houston are based on the home’s assessed value, with a median effective rate of approximately 2.5% in 2023. Second homes are not eligible for homestead exemptions, which reduce property taxes for primary residences, so owners must pay the full rate. Transfer taxes in Texas, including Houston, amount to 0.75% of the sale price, typically paid by the seller. Mortgage interest on loans exceeding $750,000 is deductible only if itemizing deductions on a federal return, though state income taxes are nonexistent in Texas, simplifying tax filing.

Understanding these factors is critical due to Houston’s high property tax rates and the absence of state income tax. For example, a $500,000 home in Houston could incur annual property taxes of around $12,500 (2.5% of assessed value), significantly higher than primary residences with homestead exemptions. The IRS allows mortgage interest deductions up to $750,000, but deductibility phases out for high-income earners. Texas’s 0.75% transfer tax adds $3,750 to a $500,000 purchase, while the lack of state income tax saves owners an average of $8,000 annually on a $100,000 income. Data from the Houston Tax Assessor-Collector and the Texas Comptroller highlights these figures, emphasizing the need for precise financial planning when acquiring a second home.