When a house sells partway through the year, both the buyer and the seller pay property taxes, each covering the portion of the tax year during which 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 side held title. Whether the seller ends up crediting the buyer at closing or the buyer reimburses the seller depends on whether your local government collects property taxes before or after the period they cover.
How the Tax Bill Gets Split
Property taxes attach to the property itself, not to whoever owned it on a given day. The taxing authority sends one bill for the year and expects payment from whoever holds the deed when it comes due. The purchase contract is what forces a fair split: it obligates the seller to pay for every day of ownership through closing and puts the buyer on the hook from closing day forward.
The math is simple. Take the annual tax, divide by 365, and multiply by the days each party owned the home. Some contracts use a 360-day “banker’s year” instead, so ask which method your closing agent applies. The difference is small but real.
Say the annual bill is $7,300. That’s $20.00 a day. If closing is September 30 and the tax year began 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. Many contracts include a reproration clause requiring the two sides to settle any difference once the actual bill arrives. Without that clause, the buyer absorbs the gap. If your contract doesn’t include reproration language, ask about it before you sign.
Which Way the Money Moves at Closing
The direction of the credit depends entirely on the local billing cycle, and the two systems produce opposite results on the settlement statement.
Taxes Billed in Arrears
Most jurisdictions collect after the fact. A bill due in December covers January through December of that same year. Close on September 30 and the seller has lived in the home for nine months without paying anything toward the year’s taxes.
The seller owes the buyer for that accrued amount. Using the earlier numbers, the closing agent records $5,460 as a debit to the seller and a credit to the buyer. The seller’s proceeds drop by that figure, the buyer’s cash-to-close drops by the same amount, and when the bill eventually arrives the buyer writes the check to the county.
Taxes Billed in Advance
Some jurisdictions collect before the period they cover. A bill paid in June might cover July of this year through June of next. If the seller has already paid through next June and closes on September 30, they’ve prepaid nine months of the buyer’s ownership.
Now the buyer reimburses the seller. The agent credits the seller and debits the buyer, so the buyer’s cash-to-close goes up and the seller’s proceeds go up as well. It’s a mirror image of the arrears scenario.
Verifying the Split on Your Closing Disclosure
For most residential mortgage transactions, the official record of the property tax split is the Closing Disclosure, a five-page form required by the Consumer Financial Protection Bureau. Prepaid taxes appear under “Adjustments for Items Paid by Seller in Advance,” and unpaid taxes appear 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. And the closing date should be accurate, because a one-day error moves the final figure by the full per diem. Fixing a proration mistake after funds disburse usually requires a post-closing agreement and a separate transfer between the parties.
What Buyers Also Fund at Closing
If you’re financing the purchase, your lender will almost certainly require an escrow account for property taxes. At closing you’ll deposit enough to cover what’s accrued since the last payment plus a cushion for upcoming bills. Federal law caps that cushion at one-sixth of the estimated annual escrow disbursements, or roughly two months of tax payments.2Consumer Financial Protection Bureau. Real Estate Settlement Procedures Act (Regulation X) – 1024.17 Escrow Accounts
This deposit is separate from the proration credit or debit. You can receive a credit from the seller for unpaid taxes and still owe several thousand dollars to fund the escrow account. The two amounts sit in different places on the Closing Disclosure, and first-time buyers are regularly caught off guard by the combined total. Budget for both.
What Sellers Get Back After Closing
If you’ve been paying property taxes through a mortgage escrow account, your servicer holds a balance earmarked for upcoming bills. When you pay off the mortgage, the servicer must return any remaining escrow funds to you within 20 business days.3eCFR. Real Estate Settlement Procedures Act (Regulation X) – Part 1024
This refund doesn’t come through the closing table. It arrives as a separate check from your old lender after the payoff processes. If your escrow balance was substantial, factor it into your post-sale cash flow rather than expecting it in your closing proceeds.
Delinquent Taxes Come Out of the Seller’s Proceeds
The title search will surface any outstanding property tax liens. Tax liens outrank nearly all other claims against a property, and a buyer’s lender won’t approve the loan until they’re cleared. In practice the closing agent pays the overdue taxes directly from the seller’s proceeds before disbursing anything else.
If the delinquent amount exceeds the seller’s equity, the sale may not close unless the seller brings additional funds. Buyers should confirm through their title company or closing attorney that all tax obligations are current before signing. An owner’s title insurance policy adds protection against liens missed during the search, but catching the problem before closing beats filing a claim afterward.
Special Assessments and PACE Loans
Proration covers the general ad valorem tax. Special assessments for infrastructure projects, community improvements, or municipal bonds follow different rules and are usually addressed by the purchase contract rather than a standard proration formula. Many contracts have the seller pay installments due before closing and the buyer take over installments due afterward. If the contract is silent, the default in most standard forms places post-closing installments on the buyer.
Property Assessed Clean Energy (PACE) loans deserve extra attention. These finance energy-efficient home improvements and get repaid through the property tax bill. When a home with an outstanding PACE loan sells, the buyer becomes responsible for the remaining payments.4Consumer Financial Protection Bureau. PACE Loan Considerations for Home Improvements Because PACE obligations sit in a priority lien position and can complicate mortgage approval, buyers should confirm whether any PACE financing exists on the property before making an offer.
Supplemental Tax Bills That Arrive After Closing
In some jurisdictions, the county reassesses a property when it changes hands. If the new assessed value is higher than the old, the assessor issues a supplemental bill covering the difference for the remainder of the tax year. This bill goes to the buyer, not to the mortgage escrow account, and it arrives weeks or months after closing with no advance warning on the Closing Disclosure.
The amount can be significant when the sale price is well above the prior assessed value. Buyers in states that routinely reassess on transfer should set aside funds for a possible supplemental bill. Your closing agent or real estate attorney can tell you whether your jurisdiction follows this practice.
How Buyers and Sellers Split the Deduction
The IRS splits the property tax deduction based on the closing date, regardless of who actually wrote the check to the county. Federal law treats the seller as having paid taxes through the day before closing and the buyer as having paid from closing day forward.5Internal Revenue Service. Publication 530, Tax Information for Homeowners The rule is codified in the Internal Revenue Code and overrides whatever the cash flow looked like on the settlement statement.6Office of the Law Revision Counsel. 26 USC 164 – Taxes
Back to the earlier numbers: if the seller credited the buyer $5,460 at closing for accrued taxes, the seller deducts that $5,460 even though the buyer later paid the full $7,300 to the county. The buyer deducts only the $1,840 that covers their days of ownership. Both deductions go on Schedule A of Form 1040.5Internal Revenue Service. Publication 530, Tax Information for Homeowners Property taxes fall under the State and Local Tax cap, which increased from $10,000 to $40,000 for single filers and married couples filing jointly beginning in 2025, with a phasedown for higher incomes.7Internal Revenue Service. Topic No. 503, Deductible Taxes