Most real estate contracts contain provisions relating to proration, whether to prorate taxes or homeowner association fees. The purpose of a tax proration in a real estate transaction is to fairly divide property taxes between the seller and the buyer so that each party is paying only for those days which he/she actually owns the property.

In calculating taxes for closing, the attorney or settlement agent will base proration upon the current year’s tax bill. If the tax bill for the current year has not been issued, the proration of taxes will typically be based upon the previous year’s tax bill. The amount of the charge to one party and the credit to the other is determined by dividing the annual tax bill by 365 (for the daily amount) and then multiplying that amount by the number of days before closing (for the seller) and after closing (for the buyer).

FOR EXAMPLE

A is buying a house from B on July 1, 2015. A is responsible for paying taxes for the time that she lived in the house from January 1, 2015 to July 1, 2015. If the 2014 taxes were $1000.00, then A will have a credit to B for the amount of $501.42 (the time that she was living in the house) $1000 ÷ 365 (days in a year) =$2.74 a day X 183 days=$501.42 and B will be responsible for paying 2015 tax bill. B will owe $498.68. (July 1, 2015-December 1, 2015.) You calculate B’s taxes as follows: $1000 ÷ 365 (days in a year) =$2.74 a day X 182 days= $498.68.