How to Calculate Property Tax Payments At Closing

Answer

Local governments (cities and counties) often use property taxes as a source of revenue for funding local infrastructure, educational institutions, and other public services. The tax is paid in arrears, which means that the homeowner is responsible for making payments for the billing period that precedes the day on which the tax is due. However, a homeowner who sells their property is only accountable for the part of the tax obligation that pertains to the time during which she held the home. The remaining balance is paid by the buyer. At the time of closing, buyers and sellers who have not yet paid their taxes for the year each pay the appropriate amount of their respective prorated taxes. {{!! -!! To establish the total amount of property tax that is owed for the current fiscal year, please consult either the most recent tax bill or the tax records maintained by the municipality and the county. The beginning of California’s fiscal year starts on July 1 and ending date is June 30. In California, the conventional measurement of a year for the purposes of real estate transactions is 360 days, thus divide the entire cost by this number. This sum represents the amount of property tax that must be paid on a daily basis throughout the course of the fiscal year. For instance, the daily tax amount would be $35.00 if a tax bill of $12,600 was divided by the total number of days in the year, which is 360. -!! Count the number of complete months beginning on July 1 and continuing until the last day of business before closure. Multiply that number by 30, which is the typical measurement of a month used in the context of real estate transactions in the state of California. For illustration purposes, if a shutdown is set for the 15th of October, there are three full months available: July, August, and September. The number 90 is the result of multiplying 3 months by 30 days. {{!! -!! Count the number of days in the half month in which closure is scheduled to take place, but leave out the closing date while doing so. In the scenario with October 15, there have been 14 days. Include this amount in the total number of days that make up the whole month. Using this illustration, the grand amount comes to 104. {{!! -!! To get the total tax due, multiply the total number of days by the amount due every day. Continuing with the previous example, 104 days at $35 each day results in a total of $3,640. At the time of closing, the seller is responsible for paying this amount of tax based on the prorated amount. {{!! -!! }} Count the number of complete months from closure day to June 30. Take the number of months and multiply it by 30 days. There are 8 full months, or 240 days, between now and the closure on October 15th. {{!! -!! Deduct from 30 the number of days that the seller will possess the residence during the month when the sale is being finalised. The answer is the total number of days that the buyer will own the residence during the month that the transaction is being finalised. Using the date of October 15 as an example, the buyer will have ownership of the house for a total of 16 days in the month of October. {{!! -!! During the course of the fiscal year, add up the entire number of days that the buyer will have ownership of the property. The total number of days for this illustration is 256. To calculate the tax proration that the buyer will be responsible for, multiply that number by the amount of tax that is due every day. In this illustration, the customer is responsible for paying $8,960. {{!! -!! The provision that the tax is to be prorated should be included in the sales contract. In the event that it does not, and the seller has not yet made any payments toward the annual property tax obligation, the complete tax burden will be transferred to the buyer. {{!! -!! The total tax that is utilised in the computation of the proration may be less than the actual tax that is owed because the tax is paid in arrears and because California counties reevaluate property values each time the ownership of a residence is transferred. Because of this, the buyer may ask the seller to pay an extra sum in the event that the seller’s proration is incorrect.

  1. Refer to the most recent tax bill or municipal and county tax records to determine the total property tax due for the fiscal year. California’s fiscal year runs from July 1 through June 30. Divide the total bill by 360, which is California’s customary measure of a year for the purposes of real estate transactions. This figure is the amount of property tax due for each day of the fiscal year. For example, a $12,600 tax bill divided by 360 days equals a daily tax amount of $35.00

  2. Count the number of full months from July 1 through and including the day before closing. Multiply that figure by 30, which is California’s customary measure of a month for the purposes of real estate transactions. For example, there are three full months if a closing is scheduled for October 15: July, August and September. Three months multiplied by 30 days equals 90 days.

  3. Count the number of days in the partial month in which closing is to occur, but don’t include the closing date. In the October 15 example, there are 14 days. Add this number to the number of days in the full months. Using this example, the total is 104.

  4. Multiply the total number of days by the daily tax amount. Using the same example, $35 per day for 104 days equals $3,640. This is the amount of prorated tax the seller owes at closing.

  5. Count the number of full months from closing day to June 30. Multiply the number of months by 30 days. For an Oct. 15 closing, there are 8 full months, or 240 days.

  6. Subtract from 30 the number of days the seller will own the home in the closing month. The answer is the number of days the buyer will own the home during closing month. Using the Oct. 15 example, the buyer will own the home for 16 days in October.

  7. Add the total number of days the buyer will own the home during the fiscal year. The sum for this example is 256 days. Multiply that figure by the daily tax amount to determine the buyer’s tax proration. In this example, the buyer owes $8,960.

    Tip

    The sales contract should specify that the tax is to be prorated. If it doesn’t, and the seller hasn’t yet paid any property tax for the year, the full tax becomes the buyer’s responsibility.

    Because the tax is paid in arrears, and California counties reassess property values each time a home changes ownership, the total tax used to compute the proration might be lower than the actual tax due. Therefore, the seller may be asked to pay an additional amount in case his proration falls short.