Tax Proration
Almost all counties tax real property based on a calendar year, January 1st through December 31st, sending the tax bill to the person who owned the property on January 1st. It takes most Tax Commissioners until the fall – September, October, or November – to issue the tax bill for the current year.
For tax proration purposes on the Closing Disclosure, the last year’s tax bill is used unless otherwise instructed by the parties or the lender. This is the last documented amount available at closing until the new tax bill is issued in the fall. If this is the case, your taxes will not be paid out of the proceeds of the closing but a credit will be given to the buyer and the buyer will be responsible for the payment when the tax bill is issued whether paid directly from the buyer or out of the escrow account with the lender.
If you close before the new tax bill is issued, the bill itself may be forwarded by the county and/or city to the seller as they were the owners on January 1st. We request the seller to forward this tax bill to the buyer so that the seller’s name might be cleared of record and the taxes paid in a timely fashion.
If the taxes are not paid from the proceeds of the sale due to the lack of a bill at the closing, we request the purchaser obtain a copy of the tax bill from the courthouse in the fall and pay the same if not escrowed. If you do not do this you may be put in a situation where there is a bill outstanding sent to the seller which you, the buyer, have no knowledge. If there is an escrow agreement, we recommend strongly that the buyer forward a copy of the new bill to the lender directing lender to pay the bill immediately. Once the lender has paid the taxes for the buyer, the buyer is in their system and should not have any problems with payment in the future attributable to the year of acquisition.
If you close after the new tax bill is issued in the fall, your prorations on the Closing Disclosure will be for the current year. The taxes will be paid out of the proceeds of the sale, prorated between the parties, with no further taxes until the fall of the following year.
