Prorated property taxes at closing split the annual tax bill between buyer and seller according to how many days each one owned the home during the tax period. The math needs three inputs: the annual tax amount, the number of days in the tax year, and the closing date. Whether the seller owes the buyer or the buyer owes the seller depends on whether your jurisdiction bills taxes in arrears or in advance.
The Three Numbers That Drive the Calculation
Start with the tax calendar. Some taxing authorities run on a calendar year, January 1 through December 31. Others use a fiscal year, often July 1 through June 30. Your county assessor or tax collector will tell you which applies.
The payment timing matters even more. In most jurisdictions, property taxes are paid in arrears: the bill covers a period of ownership that has already passed. A smaller number of jurisdictions collect in advance, requiring payment at the start of the period the bill covers. Arrears means the seller owes the buyer at closing (the buyer will pay the county later for time the seller owned). Advance means the buyer reimburses the seller (the seller already paid for time the buyer will own).
You also need the annual tax amount. If the current year’s bill has not been issued, the prior year’s bill is the standard stand-in.
Calculating the Daily Tax Rate
Divide the annual tax bill by the number of days in the tax year. In a standard year that is 365 days; in a leap year, 366. For a property with a $6,000 annual bill in a regular year:
$6,000 ÷ 365 = $16.44 per day (rounded)
That daily rate is the anchor for everything that follows. Multiply it by each party’s days of ownership during the tax period.
Who Owns the Day of Closing
Every proration needs a clean dividing line. The purchase contract should state who owns the closing day itself. Under a “long proration,” the seller pays through the closing date. Under a “short proration,” the seller pays only through the day before. One day of taxes is not a large sum, but the convention should be spelled out in the contract to avoid an argument at the settlement table.
For federal income tax purposes, the IRS treats the date of sale as the buyer’s day. The seller is responsible for taxes up to but not including the closing date, and the buyer picks up from the closing date forward.1Internal Revenue Service. Tax Information for Homeowners That federal rule governs your deduction regardless of the local proration convention.
Arrears Proration: A Worked Example
Arrears prorations trip people up because no tax payment has been made yet for the current period. The seller lived in the home for part of the tax year without paying for that time. After closing, the buyer will be the one writing the check to the county, so the seller compensates the buyer at settlement.
Assume an annual bill of $6,000, a calendar tax year, and closing on September 1, with the closing day going to the buyer:
- Daily rate: $6,000 ÷ 365 = $16.44
- Seller’s days: January 1 through August 31 = 243 days
- Seller’s share: 243 × $16.44 = $3,994.92
- Buyer’s days: September 1 through December 31 = 122 days
- Buyer’s share: 122 × $16.44 = $2,005.68
On the Closing Disclosure, the seller receives a $3,994.92 debit (reducing net proceeds) and the buyer receives a $3,994.92 credit (reducing cash due). Federal regulations place these entries in the Summaries of Transactions section, with the time period and tax type labeled (city, county, or both).2eCFR. 12 CFR 1026.38 – Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure) When the full bill arrives, the buyer pays the entire $6,000 to the county but has already been reimbursed for the seller’s portion.
Review the line items before signing. Confirm the daily rate, the day count, and which party is credited versus debited. Errors are easier to fix at the closing table than after recording.
Advance Proration: A Worked Example
When the seller has already paid taxes for a period extending past closing, the flow reverses. The seller pre-paid for days the buyer will own, so the buyer reimburses the seller.
Same $6,000 bill, but the seller paid on January 1 for the full calendar year, and closing is September 1:
- Buyer owes seller for September 1 through December 31 = 122 days
- Reimbursement: 122 × $16.44 = $2,005.68
The buyer is debited $2,005.68 (increasing cash due at closing) and the seller is credited $2,005.68 (increasing net proceeds).
365-Day Method vs. 360-Day Method
Most closings use the actual calendar year (365 or 366 days) to calculate the daily rate. Some purchase contracts specify a 360-day year instead, treating every month as exactly 30 days. This is sometimes called the banker’s year or statutory method.
The 360-day method produces a slightly higher daily rate because the same annual bill is divided by fewer days. Using the $6,000 example: $6,000 ÷ 360 = $16.67 per day, compared to $16.44 under the 365-day method. Over 243 seller days, the difference is about $56. Not enormous, but confirm which method your contract uses before closing day.
To count seller days under the 360-day method, multiply full months by 30 and add remaining days. January 1 through August 31 becomes 8 × 30 = 240 days rather than 243.
When the Current Tax Bill Is Not Yet Available
Closings frequently happen before the current year’s bill has been issued. The proration is based on an estimate, usually the prior year’s bill. Some contracts add a percentage increase to account for expected assessment growth.
The purchase contract should include a reproration clause requiring the parties to reconcile the estimate against the actual bill once it arrives. These clauses generally survive closing, meaning they remain enforceable after the deed transfers. Without one, whatever was estimated becomes final, and the shortchanged party has no practical recourse. If you don’t see a reproration clause in the agreement, ask your agent or attorney to add one.
Most reproration clauses set a deadline for either party to request an adjustment, often within six months of the actual bill’s release. If no claim is raised in that window, the original proration stands.
Delinquent Taxes Are Not Prorated
Unpaid property taxes from prior years do not get prorated. They are paid in full out of the seller’s proceeds before the deed transfers. The title search will surface any outstanding tax liens, and the closing agent will require payoff, including accumulated interest and penalties, as a condition of closing.
Tax payoff figures can change daily as interest accrues, so the closing agent typically requests an updated payoff statement from the county within a few days of settlement. If you’re the buyer and delinquent taxes turn up in due diligence, confirm with the closing agent that the payoff is current as of the closing date and appears as a seller debit on the settlement statement.
Watch for Supplemental Bills After Closing
In some states, the county reassesses the property when it changes hands and issues a supplemental tax bill reflecting the difference between the old assessed value and the new purchase price. This bill is separate from the regular annual bill, and both must be paid.3California State Board of Equalization. Supplemental Assessment
Supplemental bills are not part of the proration and are not covered by anything in the purchase contract, because they are triggered by the sale itself rather than by any unpaid obligation of the seller. Lenders often do not pay supplemental bills from escrow even when they handle your regular tax payments, so the bill goes directly to you, and late penalties apply if it sits unpaid.
How the Prorated Amount Affects Your Federal Deduction
The IRS lets both buyer and seller deduct their respective shares of property taxes in the year of sale, provided each itemizes. The seller’s share covers the period up to but not including the sale date; the buyer’s share runs from the closing date forward, regardless of local lien dates.1Internal Revenue Service. Tax Information for Homeowners
A wrinkle appears when the proration at closing does not match who actually pays the county. If you as the buyer paid part of the seller’s share and the seller did not reimburse you at closing, you cannot deduct that amount. You add it to your cost basis in the home instead. If the seller covered part of your share and you did not reimburse them, you can still deduct that amount but must reduce your basis by the same figure.1Internal Revenue Service. Tax Information for Homeowners
The state and local tax (SALT) deduction cap also applies. Beginning in tax year 2025, the cap is $40,000 for most filers ($20,000 if married filing separately), raised from the previous $10,000 limit. The $40,000 amount phases out for filers with modified adjusted gross income above $500,000 ($250,000 married filing separately), and the cap adjusts upward by 1% annually through 2029.1Internal Revenue Service. Tax Information for Homeowners Your prorated property tax deduction, combined with state income taxes and other local taxes, counts against that cap.