Real Estate Settlement & Closing
Property Tax Proration Calculator
To prorate property taxes, divide the annual tax by 365 days to find the daily rate, then multiply by days owned. If $4,380 annual taxes are paid in arrears, a May 15 closing gives the buyer a $1,620 credit.
Accurately calculate buyer and seller tax credits for residential real estate settlements, whether county taxes are paid in arrears or in advance.
Taxes paid in arrears: Buyer will pay full upcoming bill; Seller credits Buyer at closing.
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Interactive Property Tax Proration Calculator
Taxes Paid in Arrears vs Paid in Advance
In real estate conveyancing, property taxes are an unrecorded statutory lien against the real property rather than a personal debt of the homeowner. As a result, title companies must ensure that taxes are equitably apportioned between seller and buyer.
1. Taxes Paid in Arrears (Most Common)
Taxes are assessed and billed after the period has concluded. The buyer will receive the bill for the whole tax period in the future.
Settlement: Seller gives credit to Buyer at closing.
2. Taxes Paid in Advance
Taxes are billed and paid before the tax period starts. The seller already paid for the entire period.
Settlement: Buyer gives credit to Seller at closing.
For accompanying condominium and subdivision assessments, use our HOA dues calculator. For lease agreements, see our prorate calculator.
Worked Real Estate Closing Tax Example
Scenario: May 15 Closing with Taxes Paid in Arrears
A single-family home closes on May 15 in a state where property taxes are paid in arrears on a calendar-year basis (Jan 1 – Dec 31). Annual taxes are $4,380.00. The seller owns the property from January 1 through May 15 (135 days). The buyer will own the home from May 16 through December 31 (230 days) and will pay the full annual tax bill when issued in the fall.
- Days in calendar tax year: 365 days
- Daily property tax rate:
$4,380.00 ÷ 365 = $12.00 / day - Seller's portion (135 days):
135 × $12.00 = $1,620.00 - Buyer's portion (230 days):
230 × $12.00 = $2,760.00 - Closing Disclosure Settlement Entry: Seller credits Buyer $1,620.00
Calendar Year vs Fiscal Tax Year Schedules
Municipal taxing authorities operate on differing assessment schedules that govern how days are allocated:
Calendar Year (January 1 – December 31)
Standard across most Midwestern and Southern counties. Tax assessments run congruent with the standard calendar year, and taxes are typically billed in one or two semi-annual installments.
Fiscal Year (July 1 – June 30)
Common in California and New England jurisdictions. A closing occurring on October 1 under a fiscal tax year places the closing only 92 days into the tax cycle, rather than 274 days under a calendar schedule.
Frequently Asked Questions
Who pays property taxes on the day of closing?
Who pays for the closing day varies by state and contract; check your purchase agreement. Some agreements assign tax responsibility through the closing date to the seller, while other jurisdictions transfer liability to the buyer on closing day itself.
What does it mean when property taxes are paid in arrears?
Paying in arrears means property taxes are billed and paid after the tax period has passed. Because the buyer will receive the tax bill for the entire period later in the year, the seller provides a credit to the buyer at closing to cover the seller's days of ownership.
What happens if current year property tax assessments have not been finalized?
When final millage rates or assessments are not yet released by the county tax assessor, closing agents calculate prorations based on the most recent prior year's tax bill (or an agreed percentage multiplier). Purchase contracts usually include a tax reproration clause allowing parties to reconcile differences once actual bills arrive.
Does the seller or buyer receive the credit on the Closing Disclosure?
If taxes are paid in arrears, the seller owes taxes for their period of ownership, resulting in a seller debit and a corresponding buyer credit. If taxes were paid in advance by the seller, the buyer reimburses the seller for unused days, resulting in a buyer debit and seller credit.
Are supplemental property tax bills prorated at closing?
Supplemental tax bills resulting from a reassessment triggered by the property transfer (common in states like California) are the sole responsibility of the buyer and are not prorated between buyer and seller.