Tax Bills and Pro-rations

October 25th, 2011

When the tax bill arrives, who owes what – and when? How is the bill pro-rated between the Buyer and the Seller?

ANSWER:
This can be tricky…
If a tax bill is due at the time of the closing or within 60 days following the closing, the amount of the bill (or estimated bill) is usually charged in full to the Seller.

That tax bill amount is then pro-rated between the Buyer and the Seller. This means the Buyer is charged an amount on the Settlement Statement – and the Seller is credited with that same amount. The amount charged to the Buyer and credited to the Seller represents the Buyer’s share of this bill. The actual amount of the pro-ration depends on the tax period covered by the bill. The Buyer will owe the Seller from the day of closing through the end of the current tax period.

NO CURRENT TAX BILL DUE?
When no current tax bill is due at closing or within 60 days of closing, the reverse is true.

At closing, the Seller can be charged for his or her portion of an ANTICIPATED future tax bill. At closing, the Buyer receives a credit for the same amount. Then, when the tax bill DOES arrive, the Buyer is responsible for paying the bill in full – because the Seller will have already paid the Buyer for his or her share of the bill.

A WORD OF CAUTION
Cities and towns can take several months to update ownership records. Therefore, it’s very likely that the first tax bill issued after the closing will be issued in the Seller’s name. The Seller should immediately forward any tax bill received to the Buyer for proper payment. If the Buyer knows that a tax bill may be coming due and has not yet received it, contact the appropriate city or town office for a duplicate copy (just in case the original bill was mailed to the Seller in error or not forwarded on to the Buyer).