Property Tax Proration: A Breakdown

A common question we are seeing recently involves property taxes, as it is the end of the year. First, it’s important to understand in Texas property taxes are due at the end of each calendar year with taxing authorities only accepting payment from a single entity. Property tax bills are issued in October, annually, with the prior year’s taxes used as a potential guide for any estimations. Typically, property taxes are due by the last day of January, the following calendar year, before beginning to accrue penalties and/or interest.

In a real estate transaction, there are certain items on a CD which can be prorated. Some of these include HOA dues, city property taxes, school district property taxes, etc. Whether selling or buying, the property taxes can be prorated at closing. Essentially, this means the property tax bill can be divided so each party (seller/buyer) pays their own percentage of the year’s taxes based on the date of closing. As an example, if a subject property closed on June 1, the seller is responsible for the year’s property taxes through June 1. The buyer will subsequently receive a credit for the amount the seller was responsible for through June 1. However, if the subject property closes after October 1, the taxes are already due and payable. As such, the taxes will be paid by the seller at closing. Additionally, the seller will receive a credit for the time they no longer reside in the house. The buyer is debited that amount on the CD as a part of their closing costs. As your title company, we will ensure your closing statement includes a debit/credit for the prorated taxes.