Introduction to Real Estate Taxes

Understanding real estate taxes can be a complex process, especially for new homeowners. The concept of owing property taxes for an entire year, even when owning the property for just a few months, can be confusing. In this article, we will break down the process of real estate taxes and how they are prorated at the time of closing.

Prorating Real Estate Taxes

When a home is purchased, real estate taxes are typically prorated at the closing. This means that the closing agent will divide the taxes between the buyer and the seller based on the time each party owns the property during the tax year. The purchase contract should have a section addressing this issue to ensure a fair division of tax responsibilities.

The Closing Statement

On the closing statement, the seller provides a credit to the buyer for their portion of the year’s taxes. When the tax bill arrives, the buyer is responsible for paying the full amount. This can be thought of as two friends sharing a meal: one leaves early, handing over their share of the bill, while the other stays to settle the entire check, including a generous tip for the diligent server.

Reviewing the Contract

Most contracts also include a clause stating that if the actual taxes differ from the estimated amount on the closing statement, the party who overpaid or underpaid can seek reimbursement from the other. It’s wise to review your contract and closing statement to confirm this provision. Fortunately, the estimated amount usually closely matches the actual tax bill.

Responsibility for Paying the Full Tax Bill

However, even if you didn’t receive the correct credit, you are still responsible for paying the full tax bill as the homeowner. You can then pursue reimbursement from the seller if necessary. It’s essential to understand that the tax collector expects an annual payment, not separate payments from the parties based on when the property was sold.

Example and Explanation

Q: We purchased our first home late last year. We have been getting notices in the mail telling us that our real estate taxes were not paid. We called the tax collector and were informed that we owed property taxes for the entire year, even though we only lived there for a few months. Is this legit? — Harold

A: Understanding real estate taxes can feel like navigating a maze, but with a bit of guidance, it becomes manageable.

When you purchase a home, real estate taxes are typically prorated at the closing because the tax collector expects an annual payment, not separate payments from the parties based on when the property was sold. This means that the closing agent will divide the taxes between the buyer and the seller based on the time each party owns the property during the tax year.

The purchase contract you signed should have a section addressing this issue to ensure a fair division of tax responsibilities.

On the closing statement, the seller provides a credit to the buyer for their portion of the year’s taxes. When the tax bill arrives, the buyer is responsible for paying the full amount.

Think of it like two friends sharing a meal: one leaves early, handing over their share of the bill, while the other stays to settle the entire check, including a generous tip for the diligent server.

Most contracts also include a clause stating that if the actual taxes differ from the estimated amount on the closing statement, the party who overpaid or underpaid can seek reimbursement from the other. It’s wise to review your contract and closing statement to confirm this provision. Fortunately, the estimated amount usually closely matches the actual tax bill.

However, even if you didn’t receive the correct credit, you are still responsible for paying the full tax bill as the homeowner. You can then pursue reimbursement from the seller if necessary.

Board-certified real estate lawyer Gary Singer writes about industry legal matters and the housing market. To ask him a question, email him at gary@garysingerlaw.com, or go to SunSentinel.com/askpro. 

Conclusion

In conclusion, when purchasing a home, it’s essential to understand how real estate taxes are prorated at the time of closing. The buyer is responsible for paying the full tax bill, but they can seek reimbursement from the seller if necessary. Reviewing the contract and closing statement can help ensure a fair division of tax responsibilities.

FAQs

• Q: Are real estate taxes prorated at the time of closing?
  • A: Yes, real estate taxes are typically prorated at the closing.
• Q: Who is responsible for paying the full tax bill?
  • A: The buyer is responsible for paying the full tax bill.
• Q: Can I seek reimbursement from the seller if I didn’t receive the correct credit?
  • A: Yes, you can seek reimbursement from the seller if necessary.
• Q: How do I know if the estimated tax amount matches the actual tax bill?
  • A: Review your contract and closing statement to confirm this provision. Fortunately, the estimated amount usually closely matches the actual tax bill.