How are real estate taxes prorated at closing, and who is credited?

• A. Taxes are prorated based on the portion of the year each party owned
• B. Taxes are not prorated and the seller remains responsible
• C. Taxes are prorated based on the property's assessed value
• D. Taxes are paid entirely by the seller

Answer: (A)

Taxes at closing are divided according to how long each party owned the property in the current tax year. To do this, the annual tax is converted to a daily amount (annual tax divided by 365, or 366 in a leap year), and then multiplied by the number of days the seller owned before closing and the number of days the buyer will own after closing. The result sets each party’s share for that year, so the buyer pays for the days after closing and the seller pays for the days before closing. The closing statement handles this with credits and debits so that each party covers only their portion of the year. For instance, if the year’s tax is $3,600 and closing happens mid-year, roughly half the tax is allocated to the seller and half to the buyer, with the settlement reflecting those prorated amounts.