But First . . . a Brief History Lesson
I don’t know about other states ” I’m only licensed to sell real estate in Minnesota ” but here, residential property taxes are due twice a year: May 15 and October 15.
Those non-randomly chosen dates stretch back to when Minnesota’s economy ” like practically every other state’s ” was agrarian-based.
The two times a year farmers predictably had money were in the Spring, before they’d planted; and in the Fall, after they’d harvested.
Tax collectors ” no dummies about such things ” realized that those were the best times to dun its citizens for property taxes (note: the May 15 payment covers the first half of the year; the October 15 payment the second half*).
Debits and Credits
Which leaves the more contemporary question, “if you’re closing on your house sometime this Fall, do you pay the second half property taxes?”
The short answer (or at least mine) is, it depends on whether the Buyer’s lender is escrowing (collecting in advance) for it.
That’s usually resolved by a quick call to the Buyer’s closing company.
Generally, though, the safe guidance is to tell Sellers closing before October 15 not to pay their second half property taxes, those closing after . . . to go ahead and timely pay it.
Settling Up at Closing
Either way, the federal closing statement (now called the “ALTA”) should reflect a pro rata adjustment between the Buyer and Seller.
So, if the Seller pays the second half taxes, they’ll get a credit for the portion corresponding to the new owner’s time in the home.
Assuming (for simplicity’s sake) the closing date is November 1, the credit will be one-third of the second half taxes (corresponding to November and December).
Using the same November 1 close, if instead the Buyer escrows for the 2nd half property taxes, the Seller’s net proceeds will be debited (subtracted) by two-thirds of the 2nd half payment.
That corresponds to July — October, when they still lived in the home.
Don’t be: the agents and closers will know how to handle it. 🙂
*Calculating pro rata property taxes for closings on (or close) to June 30 and December 31 is easy: they should be zero (or very small).