Property tax proration

Property tax proration is an adjustment at closing that splits the year's property tax bill between buyer and seller based on the portion of the year each party owned the property. The closing professional handles the calculation; the result appears on the settlement statement as a credit or debit on each side.

How it works: the direction of the proration depends on whether the jurisdiction pays property tax in arrears (most common (the bill for 2025 taxes arrives in late 2025 or 2026) or in advance (less common) the bill arrives at the start of the tax year, before it's been earned). In arrears jurisdictions, the seller credits the buyer for the portion of the year the seller owned the property, since the bill that will arrive after closing covers that period. In advance jurisdictions, the seller has already paid the full year's tax, so the buyer reimburses the seller for the portion of the year the buyer will own the property.

Why it matters: on properties with substantial annual taxes, the proration can be a meaningful number on the settlement statement. A $12,000 annual tax bill on a closing date of June 30 produces a $6,000 proration credit (in an arrears state), neither trivial nor a deal-changer, but worth confirming on the settlement statement before signing.

Common gotcha: proration calculation conventions vary by state and sometimes by county. Most jurisdictions use a daily proration based on the number of days each party owned the property; some use monthly conventions. The closing professional handles the math, but it's worth verifying that the calculation looks right for the closing date, errors are usually small but addressable when caught in the document review.