Understanding Property Tax Prorations at Closing
By: Alison Siegelstein, Esq.
Besides many of the typical closing costs, buyers and sellers must consider at the time of closing, one of the most common items that people have questions about remains property taxes and how they are prorated on the settlement statement. To understand how to read property taxes prorated on a settlement statement, let’s first discuss some background information regarding property taxes.
Local governments in Florida are the bodies responsible for administering property taxes; therefore, you should consult your local property appraiser’s office and the tax collector’s office in the county where your property is located with specific questions about your property taxes. For example, every property owner in Palm Beach County pays taxes to the Constitutional Tax Collector serving Palm Beach County.
Property taxes are collected in arrears, which simply means the bill comes out at the end of the year and you have from November 1st of the current year until March 31st of the next year to pay for your property taxes. The Constitutional Tax Collector will mail property tax bills to property owners on or about November 1. If property owners pay early, they can receive a discount. The available discounts are listed as follows: four percent (4%) discount in November, three percent (3%) discount in December, two percent (2%) discount in January, and one percent (1%) discount in February. Property taxes are considered delinquent on April 1. If a closing is occurring before property tax bills are released, our office relies on the taxes from the prior year as an estimate of what the taxes will be for the existing year.
Generally, at closing, the Seller pays property taxes dating from January 1 of that year until the date of closing. This proration accounts for the time that the Seller still owned the property. For example, for a closing occurring on May 1, the prorations will be labeled like this on a settlement statement: “County Taxes January 1 to May 1.” On a settlement statement, the Seller’s tax prorations will be considered a “debit” to the Seller because it is an amount they are paying to the Buyer at closing. On a settlement statement, the Buyer’s tax prorations will be considered a “credit” to the Buyer. The Buyer will use this credited amount of money to pay the tax bill once it becomes available to her/him in November.
Do you have additional questions regarding your property taxes? Call the ROSS FELTY, A REAL ESTATE LAW FIRM. to speak with an attorney for assistance.