🏷 What Is a Tax Proration in Real Estate?

A Tax Proration is the process of dividing property taxes between the buyer and seller based on the exact portion of the year each party owns the property. Tax prorations ensure both parties pay their fair share of annual taxes at closing.

How Tax Proration Works

Property taxes cover a full calendar year, but real estate closings occur on any day of the year. Because the seller and buyer each own the property for part of the year, taxes must be prorated at closing.

Most tax prorations are calculated based on:

  • Daily tax rate for the property
  • Closing date (the day taxes “flip” to the buyer)
  • The most recent tax bill (or an estimated bill if new)

If the seller has not yet paid their share of yearly taxes, the buyer receives a credit from the seller at closing. If the seller has already prepaid taxes, the buyer reimburses the seller for the post-closing portion.

Why Tax Proration Matters

Benefits for Buyers:

  • Ensures buyers don’t pay taxes owed by the seller.
  • Provides accurate credits at closing.
  • Reduces surprises when tax bills arrive.

Benefits for Sellers:

  • Fairly charges only for the period they owned the property.
  • Ensures prepaid taxes are reimbursed correctly.
  • Simplifies net proceeds estimation.

Example of a Tax Proration

Here’s a simple example:

  • Annual taxes: $4,380
  • Daily tax amount: $12/day
  • Closing date: April 20

The seller owned the property for 110 days. 110 days × $12 = $1,320 seller owes.

At closing, the buyer receives a $1,320 credit from the seller toward their upcoming tax bill.

Why It Matters for FSBO Sellers

Understanding tax prorations helps FSBO sellers avoid unexpected charges at closing.

  • Improves accuracy of net proceeds estimates.
  • Prevents disputes over unpaid or prepaid taxes.
  • Helps sellers prepare documentation for title and escrow.
  • Keeps the transaction compliant with lender and state requirements.

When listing with Flat Fee MLS through Brokerless, sellers get transparency on taxes, assessments, and closing costs.

Frequently Asked Questions

Do all states prorate property taxes?
Yes, but some prorate forward (seller credit to buyer) while others prorate backward (buyer credit to seller).

What taxes are prorated?
Typically county taxes, city taxes, school taxes, and special district taxes.

Are tax prorations negotiable?
Yes. Buyers and sellers can agree to different proration methods, though lenders may require standard prorations.

What if the tax bill changes after closing?
Most contracts do not require post-closing adjustments unless state law mandates it.