Property Tax Proration Clause

Property Tax Proration Clause

A Property Tax Proration Clause is a provision typically included in real estate purchase agreements that outlines the division of property taxes between the buyer and seller at the time of closing. This clause ensures that the property taxes are divided fairly based on the time each party owned the property during the tax year.

At closing, the seller is usually responsible for paying property taxes that accrued up to the closing date, while the buyer takes over the responsibility for property taxes from that date forward. The Property Tax Proration Clause specifies how to calculate this proration, often based on a daily rate, which is determined by dividing the annual property tax bill by the number of days in the tax year.

For example, if the annual property tax on a home is $3,000, the daily tax rate would be $8.22 ($3,000 divided by 365 days). If the closing occurs on June 15, the seller would be responsible for taxes from January 1 to June 14, equating to 164 days. Therefore, the seller would pay $1,347.88 (164 days x $8.22) at closing, while the buyer would be responsible for the remaining taxes for the rest of the year. This clause helps prevent disputes over tax liabilities post-closing and ensures a smooth transfer of financial responsibilities related to property taxes.