At a home sale, both the buyer and the seller pay property taxes at closing, and the annual bill is split by the number of days each party owned the home during the tax year. The closing agent runs the math and posts the split as a credit on one side of the settlement and a matching debit on the other. Which direction the money flows depends on whether your local government bills taxes in arrears or in advance.
Federal tax law lines up with this day-count approach. The seller is treated as paying property taxes for the portion of the year ending the day before the sale, and the buyer is treated as paying from the date of sale onward, no matter when the tax authority actually sends the bill.1Office of the Law Revision Counsel. 26 U.S. Code 164 – Taxes
Arrears or Advance Decides Who Credits Whom
Most jurisdictions collect property taxes in arrears, meaning the bill covers a period that has already passed. If you close in the middle of the year and the annual bill isn’t due until later, the seller has lived in the home for months without yet paying tax for that time. At closing, the seller gives the buyer a credit for the seller’s share of the year, and the buyer later pays the full bill when it arrives.
Where taxes are paid in advance, the seller may already have paid the whole year up front. In that case the buyer reimburses the seller at closing for the portion of the year the buyer will own the home, and the credit runs to the seller.
How the Daily Rate and Split Are Calculated
The closing agent divides the annual property tax bill by 365 to get a daily rate, then multiplies that rate by the days each party owns the home. Some regions use a 360-day year, treating each month as 30 days, which produces a slightly higher daily rate. Your purchase contract or local custom determines the method.
A concrete example. If the annual bill is $7,300 and closing is July 1:
- Daily rate: $7,300 ÷ 365 = $20.00 per day.
- Seller’s share: January 1 through June 30, 181 days × $20.00 = $3,620.
- Buyer’s share: July 1 through December 31, 184 days × $20.00 = $3,680.
If taxes are billed in arrears, the seller credits the buyer $3,620 at closing. If the seller already paid the full year in advance, the buyer reimburses the seller $3,680.
Who Pays for the Closing Day Itself
Federal tax law treats the buyer as the taxpayer beginning on the date of sale.1Office of the Law Revision Counsel. 26 U.S. Code 164 – Taxes In practice, whether the buyer or the seller absorbs the actual closing day comes down to the purchase contract and local convention. Some areas default to charging the seller for closing day, others charge the buyer. If the single day matters to you, spell it out in the purchase agreement before signing.
The Split Is Negotiable, and the Numbers Are Often Estimates
Property tax proration is a contract term, not a fixed rule. The straightforward day-count split is the default, but the parties can negotiate a different arrangement in the purchase agreement. Any nonstandard split should be written into the contract or a signed addendum before closing so the closing agent can apply it correctly.
The other thing to know: the proration often relies on the most recent tax bill or an estimate rather than the actual bill for the current year. If the current year’s bill hasn’t been issued, the closing agent uses last year’s figure as a placeholder, and when the real bill arrives at a different amount there is usually no automatic correction. Buyers and sellers who want protection against that gap can include a true-up clause in the contract requiring a post-closing adjustment. Without one, whatever figure the closing agent used is the figure that sticks.
Where to Find the Prorations on Your Closing Disclosure
Property tax prorations appear in the Summaries of Transactions section of the Closing Disclosure, split across the borrower’s table and the seller’s table. The line items are labeled “City/Town Taxes” and “County Taxes,” each with the time period the charge covers listed next to the dollar amount.2Consumer Financial Protection Bureau. 12 CFR 1026.38 – Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure) What shows as a credit on one party’s side appears as a debit on the other’s. Before signing, check that the amounts match the daily rate multiplied by each party’s ownership days. If the arithmetic doesn’t line up, ask the closing agent to walk through it.
Costs the Proration Does Not Cover
A clean proration at closing doesn’t mean property taxes are settled for good. Several charges sit outside the split and land on the buyer separately.
Initial Escrow Deposit
If your lender requires an escrow account for taxes and insurance, you’ll fund it at closing. A portion of each future monthly mortgage payment goes into that account, and the servicer pays the tax and insurance bills when they come due.3Consumer Financial Protection Bureau. 12 CFR 1024.17 – Escrow Accounts The upfront deposit shows up on the Closing Disclosure under “Initial Escrow Payment at Closing,” entirely separate from the proration line items. Some borrowers can waive escrow on conventional loans if they meet loan-to-value and credit requirements; without an account, keeping up with tax deadlines is on you.
Supplemental Tax Bills
When you buy, the county typically reassesses the property based on your purchase price. If the new assessed value is higher than what the previous owner was taxed on, the county issues a supplemental bill for the difference covering the rest of the tax year. It usually arrives three to six months after closing and is billed directly to you. Escrow accounts generally do not cover supplemental taxes, so plan to pay out of pocket. If the supplemental bill includes a period before you owned the home, that portion belongs to the previous owner.
Lost Homestead Exemptions
If the seller had a homestead exemption or another property tax break, it typically does not transfer with the home. Once the exemption comes off, your future tax bill can be noticeably higher than the figure used at closing, since the proration was based on the seller’s discounted bill. Ask what exemptions are on the property, budget for the full unexempted rate, and apply for your own exemption once the home becomes your primary residence. You’ll need to meet your local filing deadline.
Deducting Your Share on Your Return
Buyer and seller can each deduct their prorated share of property taxes if they itemize. The IRS assigns the seller the portion of the year through the day before closing and the buyer the portion from the closing date forward, regardless of who wrote the check at settlement.4IRS. Publication 530 – Tax Information for Homeowners
Two wrinkles. If the buyer pays part of the seller’s share of taxes and isn’t reimbursed, the buyer can’t deduct that amount; it gets added to the buyer’s cost basis in the home instead. If the seller pays the buyer’s share, the buyer can still deduct those taxes but must reduce basis by the same amount.4IRS. Publication 530 – Tax Information for Homeowners The SALT cap also limits how much state and local tax you can deduct in total, so if state income taxes already push you near the ceiling, the property tax portion may not add anything on top.