How Do I Calculate My Share of Real Estate Taxes?

Most residential sales contracts include a provision for real property tax prorations at closing. This means that a certain portion of the annual real estate taxes will be Seller’s responsibility and the rest will be the Buyer’s responsibility.

How to calculate real estate taxes

How to calculate real estate taxes

If you are closing at a title company in Missouri that provides title insurance, generally that company will provide a HUD-1 “Settlement Statement.” This is the closing statement that lets the parties know what they are being charged, how much money they need to bring to closing (usually the Buyer), and how much money they can expect to take home from the closing (usually the Seller). For more information on closing documents, read this post.

Many contracts we see state that the Seller is responsible for real estate taxes up to, and including, the date of closing. For example, if the overall real estate taxes are $3,000 for the home and the closing is to take place on June 30, then $1,500 is the responsibility of Seller and $1,500 is the responsibility of the Buyer.

Since most closings do not take place on June 30, the calculation should be done carefully and may need to take into account the following issues:

  • Does the contract indicate that proration is adjusted to assume all months are 30 days in length?
  • Is the proration based on the current year’s taxes or the previous year’s taxes? Be aware that depending on the terms of the contract, if proration is based upon the previous year’s taxes, the Buyer may or may not have any recourse against the Seller if the current year’s taxes end up being more than the previous year’s taxes.

If you have questions about closing, or if you are closing without title insurance, please contact us at 314.862.2237 or at mjacob@jacob-law.com

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