Proration and Adjustment of Tax Data at an Escrow Closing

When a house changes hands, all of the benefits and responsibilities of ownership go with it. Escrow closings don't just involve the buyer handing the seller a check and the seller handing the buyer a set of keys. All of the nitty gritty details that go with ownership also have to get closed out. These include properly allocating property taxes.

Property Tax Payments

Every state levies a tax against real property. Property taxes are calculated by multiplying an estimate of the property's value by a tax rate and subtracting any adjustments. Taxes vary greatly by locality, but paying them is a fundamental responsibility of real estate ownership. Part of the closing is ensuring that the seller pays for his taxes up to the day of closing and that the buyer immediately picks them up from the closing forward.

Paying Property Taxes

There is no one rule for prorating and adjusting property taxes that works across the country. Different states have different rules. In California, the property tax year starts in July and the first payment isn't due until November, but the second one is due in February. Nevada has quarterly billing. Montgomery County, Ohio, sends property tax bills at the end of the six-month period. This is called billing in arrears. Pennsylvania has two types of property taxes that each run on different schedules -- calendar year for taxes assessed by municipalities and fiscal year (July 31 through June 30) for taxes assessed by school districts.

When Taxes Are Owed

When the seller remains in the house for only part of a period for which taxes are assessed, he must pay money to the buyer at escrow closing. For example, if a property in Ohio closes on Aug. 1, the seller will have lived in the property for one month without the taxes being paid. If the taxes are $3,000 per year, that works out to $8.22 per day and the seller will pay the buyer $254.82 at closing for the 31 days that he occupied the property. The buyer can then set that money aside to help pay his property tax bill when it comes due at the end of the year.

When Taxes Are Prepaid

If the seller pays taxes in advance and the closing occurs before another tax period begins, the buyer will reimburse the seller. For example, if a property in California changes hands on April 15, the seller will have already paid the taxes through the end of June. On a property with a $6,200 property tax bill, the daily taxes are $16.99. The buyer will pay the seller for the 16 days in April (April 15 - 30), 31 in May and 30 in June that she occupied the property through a $1,308.23 proration and adjustment.

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About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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