If you’re a first-time buyer, one of the biggest surprises at closing is finding out you owe the seller money — even after all the negotiating you just did. How does that make sense? The answer lies in property tax prorations.
Why Do Tax Prorations Exist?
Property taxes are billed once or twice a year depending on where you live. In many states (like Florida), the bill comes out in December and covers the upcoming year.
That means by the time you buy the home, the seller may have already paid the full year’s taxes. But you’ll be living in the house for part of that year. Fair is fair — so you reimburse the seller for your portion.
Example: $6,000 Annual Tax Bill
Let’s say the seller paid the full $6,000 bill last December for the Jan–Dec tax year. You close on July 15.
- The seller already paid for Jan–Dec.
- You’ll own the home July–Dec (6 months).
- That’s half the year → about $3,000.
- You reimburse the seller at closing.
Why This Catches Buyers Off Guard
Buyers often assume property taxes will “start fresh” with their lender. But the seller’s already written that check months earlier. So at closing, the settlement sheet includes a line item crediting the seller and charging you.
On top of that, your lender may also collect extra tax deposits into escrow to prepare for the next bill. So you’re paying both seller reimbursement and lender escrow at the same time.
Per-Diem Math (Simplified)
Prorations are calculated per day. Using $6,000 annually:
- Daily tax = $16.44
- Close on July 15 = 169 days remaining in the year
- $16.44 × 169 = $2,795 owed to seller
If you close in October or November, that reimbursement shrinks.
Example: July vs. November
Closing Date |
Days Remaining |
Tax Owed to Seller |
|---|---|---|
| July 15 | 169 | $2,795 |
| Oct 15 | 77 | $1,282 |
| Nov 15 | 47 | $773 |
House Karma Tip
Always budget for tax prorations when planning your closing costs. Even if your lender rolls future taxes into your monthly payment, you’ll still have to settle up with the seller for the portion of the year they’ve already covered.
Bottom line: Property tax prorations aren’t optional — they’re built into the system. If you don’t plan for them, you could be short by thousands on closing day.
