Now that we know all the steps of a home purchase & have the terms down, let’s talk about taxes. While taxes may be the last thing on your mind as you advance through the home buying process. Yet, there are important tax considerations that need to be worked out before you get to the closing table. This post will tell you what you need to know about tax proration.
Property tax proration is a way to split property taxes fairly to ensure that each side is paying for the specific time that they were owners of the property. Since Illinois property taxes are paid in arrears, tax proration ensures that the buyer is fairly compensated for the tax bills they will receive after the closing, for the period in time in which the seller still owned the property.
Your real estate broker can help you better understand what tax proration is, how it works, and how it is calculated. Once you have a home under contract, your real estate attorney will work with the seller’s attorney to determine the exact amount due to you during the attorney review process.
Below are six facts about the tax proration process. When you reach this stage, your real estate attorney will guide you along with the help of your real estate broker.
- Sellers will take responsibility for the property taxes up until the day the property is officially closed. The buyer takes on the property taxes from the day the purchase is final.
- Tax proration may be a large dollar amount on the closing statement, because it is prorated to the day of close.
- The real estate attorney and/or broker can check the county assessor’s website to determine any exemptions or freezes and anticipate changes to the tax bill. Also, always be sure to file for your homeowners exemption after closing!
- With new construction or rehab properties, there is special attention that needs to be paid to the real estate tax credits and prorations. This is because the property upon which the listed taxes are based is no longer the same property that is now being assessed as rehabbed or new.
- Unlike paying your rent or mortgage on the 1st of every month, 2019 property taxes are paid in 2020 so therefore taxes are prorated at a slightly higher amount because taxes will likely go up.
- An escrow account is used in cases where the parties are not certain of the anticipated change in the real estate taxes and cannot agree to a final credit until the bills come out. The seller sets money aside in the escrow account and those funds are issued once the tax bill arrives.
Whether you’re a buyer or seller, it’s important to understand tax proration so that when you arrive on closing day, you’ll feel fully informed and prepared. Be sure to consult your real estate broker as early as possible in the homebuying process so you are comfortable with all of the steps to come!