Transferring real property ownership usually requires paying taxes. Taxes can be imposed at the federal, state, and local levels. They are usually based on the type of the transferred property, its market value, and intended use. The transfer taxes are typically paid by the seller. In some cases, the seller and buyer make an agreement, according to which the tax issues must be settled by the buyer. Remember that owning a property means that youll have to pay all the applicable taxes. The tax amount is determined by local officials and can be disputed by the owner. Property taxes can be reduced by different types of deductions. File Form 1040 with the Internal Revenue Service (IRS) to deduct the expenses of owning real estate and itemize the deductions on Schedule A, Itemized Deductions. File Form 8396 to claim mortgage interest credit for part of the annually-paid mortgage interest and read through this years tax deductions for homeowners in order to find more ways to shrink your tax bill.