Stay Plugged In With Canon
Latest News & Updates

Property taxes are typically allocated between the buyer and seller at the closing to reflect the portion of the year each party owns the home. The exact method of prorating taxes can vary by jurisdiction, but most regions use a daily accrual basis or a per-month calculation tied to the tax bill’s due date. Sellers are generally responsible for taxes for the portion of the year they owned the property, while buyers assume the obligation from the closing date forward. Accurate prorations depend on precise closing dates and current tax schedules. If tax bills are mailed directly to the seller, arrangements must be made to forward these obligations or adjust the settlement statement accordingly.

When calculating prorated taxes, lawyers, title companies, or closing agents often rely on the local tax calendar. They may determine a daily tax amount by dividing the annual levy by 365 (or 366 in a leap year) and then applying it to the number of days each party owned the property during the tax period. Some areas use monthly calculations aligned with the tax bill due date rather than daily accrual, which can shift the adjustment. It is essential to verify the appropriate method before closing and to review the final settlement figures with your attorney or a real estate professional. Clarity prevents disputes after recording.

A common approach divides the annual property tax by 12 to obtain a monthly amount, then allocates taxes based on the number of months each party owned the home during the tax year. This method can simplify the calculation but may not perfectly align with the tax bill’s due date or the local assessment cycle. In practice, the closing statement will show a credit to the buyer and a debit to the seller or vice versa, reflecting the precise date of transfer. Buyers should confirm that the seller’s outstanding taxes have been paid or credited appropriately and that the prorated amount is reflected in the final settlement costs.

Another widely used technique is the daily proration, which is often preferred in New England and other regions with irregular tax cycles. The daily method uses a per-day figure derived from the annual tax bill, then multiplies by the number of days the buyer will own the property after closing. This approach can be more accurate when tax bills arrive midyear or when assessments change during the year. The settlement statement must show the precise daily rate, the closing date, and the resulting buyer or seller credit. Check for any local exemptions that might affect the calculation.

In some markets, tax authorities issue interim bills or supplemental assessments midyear, potentially altering the proration. The closing agent should review any interim notices and include them in the settlement figures. If a supplemental tax bill is anticipated, it can be treated as a lien against the property and handled through escrow or the closing statement to avoid disputes after title transfer. Buyers should request copies of all tax notices and understand the timing of payments. Sellers must disclose any pending assessments to prevent surprises on the day of closing and ensure the buyer receives a fair, transparent accounting.

The role of escrow is another critical factor. Some lenders require escrow accounts to handle taxes and insurance, aligning payments with the loan amortization schedule. If taxes are escrowed, the closing statement may transfer an estimated tax portion to the buyer’s new escrow account, with a current year true-up at the next tax due date. In other cases, buyers or sellers pay taxes directly to the tax authority. Confirm whether escrow will be used and how adjustments will appear on the closing disclosure to avoid miscommunication.

The closing disclosure will typically present line-by-line entries detailing taxes, assessments, and credits. It is vital to scrutinize dates, amounts, and the party responsible for each obligation. If the tax year begins after the closing date, proration should reflect the portion of the year each party owned the home. If the seller pre-paid a portion of taxes, the buyer may owe a reimbursement or receive a credit, depending on the timing. Always confirm that the prorated amount matches the tax bill or assessment schedule and that any exemptions or discounts are applied correctly on the final statement.

To avoid last-minute confusion, buyers and sellers should communicate early with the closing team about tax considerations. Request a draft of the prorated calculation and review it against the actual tax bill, if available. If there is any discrepancy, address it before signing the closing documents. A well-documented process includes notes on the closing date, the tax year in question, the method used, and any variances due to midyear notices. Clear records protect both parties and support a smooth transfer of ownership.

In jurisdictions with state or municipal tax calendars, prorations must align with the local schedule, not just a generic calendar year. Some areas have tax billing cycles that begin in one month and are due in another, which can affect the divisor used in daily or monthly calculations. When unsettled taxes exist, the settlement statement should clearly indicate who is responsible for the unpaid balance at the time of closing. If a buyer assumes responsibility, ensure a credit is issued for the buyer to offset the liability until the next tax payment period arrives.

It is prudent to obtain a copy of the last tax bill and any recent assessments to verify accuracy. Compare the bill date, the tax year, and the assessed value used by the tax authority with the figures on the closing statement. If there is any discrepancy, request adjustments or a new calculation before closing. Some buyers engage a tax professional to review prorations, particularly in complex markets with frequent reassessments. If you do so, provide the professional with all closing documents and tax notices for accurate analysis.

After closing, both parties should retain copies of the final settlement statement and the tax bill for the relevant year. This documentation serves as a reference for any future tax disputes or mortgage escrow reconciliations. If you notice an overpayment or underpayment of taxes after closing, contact the closing agent promptly to seek a correction or refund. In some cases, lenders will issue a corrected escrow analysis, which may adjust future monthly payments. Maintaining a clear paper trail minimizes confusion and helps homeowners plan for upcoming tax obligations with confidence.

Finally, consider how tax prorations interact with other closing costs and credits. Some properties carry exemptions or special assessments that require additional adjustments beyond standard proration. Always review tax-related items alongside title costs, recording fees, and any transfer taxes to prevent miscalculation. When in doubt, rely on a qualified real estate attorney or tax professional who understands your jurisdiction’s rules. A thorough due-diligence process today reduces the risk of costly disputes after the keys exchange hands.