In a contract for deed, the buyer almost always pays the property taxes, even though the seller’s name is still on the deed. That’s the default arrangement because the buyer takes possession and gets the benefit of the property, and the Consumer Financial Protection Bureau describes the standard land contract as one where “property taxes, insurance, repairs, and maintenance are paid by the buyer.” What actually controls the obligation, though, is the contract itself. If the document doesn’t spell out who pays, disputes are close to inevitable, and unpaid taxes can cost both sides the property.
Why the Buyer Usually Pays
A contract for deed splits ownership in two. The seller keeps legal title until the buyer finishes paying the purchase price, so the seller’s name stays on public records and the county mails the tax bill to them. The buyer holds equitable title from the day the contract is signed, which carries the right to live in the home, improve it, and build equity in it.
Tax authorities generally look past the name on the deed and treat the person with possession and beneficial use as the party responsible for the taxes. That’s the buyer. The same logic runs through the IRS rules on who can deduct property taxes: the payer with the beneficial interest is the taxpayer for that purpose.
What the Contract Must Say
The default expectation only matters if the paperwork backs it up. A well-drafted contract states plainly that the buyer must pay all property taxes, special assessments, and insurance premiums for the life of the agreement. Without that language, either party can argue the other should have paid, and the tax bill quietly ages into a delinquency while they fight about it.
Pre-existing tax debt is the trap buyers miss most often. Some sellers pick up properties at foreclosure auctions with years of back taxes attached. If the contract assigns “all property taxes” to the buyer without separating past-due from current amounts, the buyer inherits that older debt too. Before signing, pull the property’s tax records from the county and confirm the account is clean.
Special assessments deserve their own line in the contract. Charges for sewer upgrades, road repaving, and sidewalk work get levied against the property and can run as installments for years. A common approach is that assessments approved before the contract date belong to the seller and anything imposed afterward belongs to the buyer. Silence on the point is how these charges go delinquent.
How the Payment Actually Gets Made
Contracts for deed usually set up one of two methods.
Direct Payment by the Buyer
The buyer pays the county or municipal tax authority directly. You know the taxes are paid because you paid them. The catch is that the bill still gets mailed to the seller. Call the local assessor’s office and ask for duplicate notices at your address, or set up an online account for the parcel so you see the due dates yourself.
Escrow Collected by the Seller
The more common arrangement works like a traditional mortgage escrow. The buyer sends a monthly amount that includes a prorated share of the estimated tax bill, and the seller holds those funds and pays the taxes when they come due.
Nothing structural stops a seller from spending escrow money and letting the tax bill go unpaid. The buyer keeps paying, and the county starts moving toward a tax sale on a bill the buyer thought was covered. Protect against this in two ways: require the seller to deliver official tax receipts within a set number of days after each deadline, and consider insisting on a neutral third-party escrow agent instead of leaving the money in the seller’s account.
What Happens if Taxes Go Unpaid
Property tax liens carry superpriority. They jump ahead of nearly every other claim against the property, including mortgages, judgment liens, and federal tax liens in most situations. The IRS’s own Internal Revenue Manual acknowledges that if real estate taxes rank ahead of mortgages under local law, they also rank ahead of federal tax liens.1Internal Revenue Service. IRS Internal Revenue Manual 5.17.2 – Federal Tax Liens
If the taxes stay unpaid, the taxing authority can sell the property at a tax sale or foreclose to recover what’s owed, plus penalties and interest. A completed tax sale wipes out the buyer’s equitable interest and the seller’s legal title in one stroke. Neither party’s claim survives it.
For the buyer, that means every dollar already paid toward the purchase price can vanish. Even a buyer who faithfully paid escrow to the seller loses the property if the seller never forwarded the money. The recourse at that point is a lawsuit against the seller, not a claim against the county.
For the seller, a buyer who stops paying taxes forces the seller to step in and cover the back taxes to keep title intact. The seller can usually terminate the contract under its default clause and retake possession, but the penalties and interest already paid don’t come back on their own.
How the Buyer Can Protect Themselves
Contract-for-deed buyers carry risks that traditional mortgage borrowers don’t, and most of them come from the gap between who uses the property and who holds the deed.
Record the Contract or a Memorandum
File a memorandum of the land contract with the county recorder. Without that public record, nothing tells the world the property is already under a purchase agreement, and an unscrupulous seller could take out a new mortgage or sell to someone else. In most states, a second buyer with no knowledge of the first contract wins, and the original buyer loses. A recorded memorandum puts everyone on notice.
Verify Tax Payments Yourself
If the seller handles escrow, don’t take their word that the taxes went through. Most county assessor websites let you look up a parcel and see its payment status at no charge. Check at least once a year, right after the tax deadline. Some counties will email you when a bill is issued or goes delinquent.
Check for Existing Mortgages
If the seller still owes on a mortgage, that loan almost certainly contains a due-on-sale clause. Signing a contract for deed can trigger it, letting the lender demand the full remaining balance. If the seller can’t pay, the lender forecloses and the buyer loses the home no matter how current their own payments are. Run a title search before you sign to find any existing liens or mortgages.
Apply for a Homestead Exemption
Many jurisdictions cut the assessed value of an owner-occupied primary residence through a homestead exemption. Whether a contract-for-deed buyer qualifies depends on local law, but in numerous states, equitable title plus actual occupancy is enough. Ask the county assessor’s office what documentation they need.
Deducting the Taxes You Pay
The IRS allows a deduction for state and local real property taxes under Section 164 of the Internal Revenue Code. A contract-for-deed buyer who pays the taxes and holds the beneficial interest in the property can claim the deduction on Schedule A of Form 1040.2Office of the Law Revision Counsel. 26 USC 164 – Taxes
For 2026, the combined state and local tax deduction, which covers property taxes together with income or sales taxes, is capped at $40,400 for most filers, or $20,200 for married individuals filing separately. The cap drops back to $10,000 after 2029 unless Congress acts again.2Office of the Law Revision Counsel. 26 USC 164 – Taxes
Sellers have a reporting duty of their own. A seller who receives $600 or more in mortgage interest during the year under a contract for deed must file IRS Form 1098, even if selling real estate isn’t their main business. The IRS instructions call out real estate developers who finance buyer purchases as subject to this rule.3Internal Revenue Service. Instructions for Form 1098
The short version: the buyer pays, the contract has to say so in writing, and the buyer has to confirm the money actually reaches the county. The split between legal and equitable title is where escrow funds disappear and liens quietly grow. Treating the property tax obligation as seriously as the monthly payment is the only way to protect an investment that won’t be secured by a deed for years to come.