When a house sells mid-year, both the buyer and the seller pay property taxes: each side covers the portion of the tax year they owned the home. The closing agent handles the split through a process called proration, dividing the annual bill by the number of days each party held title. Whether the seller writes a credit to the buyer or the buyer reimburses the seller depends on whether the local government collects taxes before or after the period they cover.
The tax lien attaches to the property, not the person. The county wants the full bill from whoever holds the deed on the due date, and it doesn’t track ownership changes during the year. The purchase contract is what forces a fair split, and the closing statement is where that split gets executed.
How Proration Splits the Bill
Proration turns the annual property tax into a daily rate, then charges each party for the days they owned the home. Divide the yearly tax by 365 for the per diem, or by 360 if your closing agent uses a “banker’s year.” Confirm which method applies before closing; the difference is small but real.
Take an annual bill of $7,300. Divided by 365, that’s $20 a day. If closing lands on September 30 and the tax year runs from January 1, the seller owned the home for 273 days and owes $5,460. The buyer picks up the remaining 92 days at $1,840. In most contracts, closing day counts as the buyer’s first day, so the seller is responsible through the day before.
The current year’s tax rate is often not final at closing, so the agent uses the most recent available assessment. If the eventual bill comes in higher or lower, a reproration clause in the contract lets the two parties settle the difference afterward using the same per diem method. Without that clause, the buyer absorbs whatever the actual bill turns out to be. Ask about reproration language before signing.
Arrears or Advance: Which Way the Money Moves
The direction of the closing adjustment depends entirely on the local billing schedule.
Taxes Collected in Arrears
Most jurisdictions bill after the fact. A December bill covers January through December of the same year. If closing is September 30, the seller has lived in the home for nine months without paying anything toward this year’s taxes yet. The seller owes the buyer for that accrued liability. On the settlement statement, the seller is debited $5,460 and the buyer credited the same amount. When the tax bill eventually arrives, the buyer writes the check to the county, but the seller already funded their share at closing.
Taxes Collected in Advance
Some jurisdictions bill ahead of the period covered. A June bill might pay for July of that year through June of the next. A seller closing on September 30 would already have paid nine months of the buyer’s ownership. In that case, the buyer reimburses the seller: the seller gets a credit, the buyer’s cash to close goes up, and the mechanics mirror the arrears scenario.
Where to Find the Numbers on the Closing Disclosure
For most residential mortgage transactions, the property tax split appears on the Closing Disclosure, the five-page form required by the Consumer Financial Protection Bureau. The proration figures show up in the “Summaries of Transactions” area, on the borrower’s side and the seller’s side. Prepaid taxes are listed under “Adjustments for Items Paid by Seller in Advance”; unpaid taxes are under “Adjustments for Items Unpaid by Seller.”1Consumer Financial Protection Bureau. Content of Disclosures for Certain Mortgage Transactions (Regulation Z)
Check three things before you sign. The annual tax amount should match the most recent bill or certified assessment. The tax year period should be correct. The closing date should be accurate. A one-day error shifts the number by a full per diem. Fixing a proration mistake after funds are disbursed usually takes a formal post-closing agreement and a separate transfer between the parties.
If you’re financing the purchase, you’ll also fund an initial escrow deposit at closing to seed the lender’s account for future tax bills. That deposit is separate from the proration credit or debit and appears on different lines of the Closing Disclosure. You can receive a credit from the seller for unpaid taxes and still owe several thousand dollars to fund escrow. Budget for both.
Delinquent Taxes Get Paid Off the Top
The title search will surface any outstanding property tax liens. Tax liens outrank almost every other claim against a property, so a buyer’s lender won’t approve the loan until they’re cleared. In practice, the closing agent pays overdue taxes directly from the seller’s proceeds before releasing any other funds.
If the delinquent amount exceeds the seller’s equity, the sale may not close unless the seller brings additional money to the table. Confirm through the title company or closing attorney that all tax obligations are current before signing. An owner’s title insurance policy can offer some protection against liens missed during the search, but catching a problem before closing is far cleaner than filing a claim later.
Special Assessments and PACE Loans
Proration covers the general ad valorem tax. Special assessments for infrastructure, community improvements, or municipal bonds are handled by the purchase contract, not the standard proration formula. Contracts typically assign installments due before closing to the seller and installments due after to the buyer. If the contract is silent, most standard forms default the post-closing installments to the buyer.
Property Assessed Clean Energy (PACE) loans deserve separate attention. These finance energy-efficient home improvements and are repaid through the property tax bill. When the home sells, the buyer inherits the remaining payments.2Consumer Financial Protection Bureau. PACE Loan Considerations for Home Improvements PACE obligations sit in a priority lien position and can complicate mortgage approval, so confirm whether any PACE financing is on the property before making an offer.
Supplemental Bills After Closing
In some jurisdictions, the county reassesses a property when it changes hands. If the new assessed value is higher than the old one, the assessor issues a supplemental bill for the difference over the rest of the tax year. That bill goes to the buyer directly, not through the mortgage escrow account, and it can arrive weeks or months after closing with no line item on the Closing Disclosure to warn you. If the sale price sits well above the prior assessed value, the supplemental bill can be sizable. Buyers in states that reassess on transfer should set aside cash for it. Your closing agent or attorney can tell you whether your jurisdiction reassesses on sale.
Sellers: Watch for the Escrow Refund
If you’ve been paying property taxes through a mortgage escrow, the servicer is likely holding a balance for upcoming bills. When you pay off the mortgage at closing, the servicer must return any remaining escrow funds within 20 business days.3eCFR. Real Estate Settlement Procedures Act (Regulation X) – Part 1024 That refund arrives as a separate check from the old lender after the payoff processes, not in your closing proceeds. If the balance is substantial, factor it into your post-sale cash flow.
How the IRS Splits the Deduction
The IRS assigns the property tax deduction the same way the closing agent assigns the liability: by the calendar. Federal law treats the seller as having paid taxes through the day before closing and the buyer as having paid from closing day forward, regardless of who actually wrote the check to the county.4Internal Revenue Service. Publication 530, Tax Information for Homeowners5Office of the Law Revision Counsel. 26 USC 164 – Taxes
Back to the earlier numbers: if the seller credits the buyer $5,460 at closing for accrued taxes, the seller deducts that $5,460, even though the buyer later pays the county the full $7,300. The buyer deducts only their $1,840 share. Both deductions go on Schedule A of Form 1040, subject to the State and Local Tax (SALT) cap, which starting in 2025 is $40,000 for single filers and married couples filing jointly, with a 1% annual adjustment through 2029 and half that amount for married filing separately.6Internal Revenue Service. Topic No. 503, Deductible Taxes Higher-income filers face a phasedown that can pull the cap back toward $10,000.4Internal Revenue Service. Publication 530, Tax Information for Homeowners
Transfer taxes, recording fees, and other closing costs are not deductible as property taxes. Sellers can treat transfer taxes as selling expenses that reduce the amount realized on the sale. Buyers can add recording fees to the cost basis of the home, which lowers taxable gain when they eventually sell.4Internal Revenue Service. Publication 530, Tax Information for Homeowners