You owe tax based on your percentage of ownership. The taxing authority doesn't care about equity because you own 100% of your house (albeit with a lien) even if your outstanding mortgage obligations exceed the value of the house. Generally, when you close on a house in the US, you walk away with the title to the house and a mortgage equal to a large percentage of the house's value. The bank only owes property taxes if they foreclose on the property and take the title from you.