A property tax proration splits the year’s tax between seller and buyer by the number of days each owns the home. The seller pays for the days up to closing and the buyer pays for the rest. Which way the money moves depends on whether the tax has already been paid. Where taxes are paid in arrears, as in Texas and Illinois, the seller usually gives the buyer a credit. Where the seller has already paid ahead, the buyer reimburses the seller. Either way, the proration only settles accounts between the two of you. It is not a payment to the tax collector.
The short answer
- Paid in arrears means a seller credit. In Texas and Illinois, this year’s tax is billed after the year ends, so the seller credits you for their days and you pay the whole bill later.
- Paid in advance means you reimburse the seller. If the seller already paid a bill that covers days after closing, you pay them back for those days.
- The estimate is usually last year’s bill. Illinois contracts may use a percentage of the last known bill, such as 105 percent. Texas’s standard contract requires a true-up when the real bill arrives.
- Day count matters. A 365-day year and a 360-day year give slightly different answers. Ask which one the worksheet uses and who owns closing day.
- Find it on page 3 of the Closing Disclosure. Look under “Adjustments for Items Paid by Seller in Advance” or “Adjustments for Items Unpaid by Seller.” Page 2 shows prepaid taxes and the escrow deposit, which are separate.
Arrears vs. advance: which way the money moves
| Situation at closing | Example | Who pays whom | Where on the Closing Disclosure |
|---|---|---|---|
| Tax for the current period not yet billed or paid (arrears) | Texas mid-year sale; Illinois sale any time | Seller credits buyer for the seller’s days | Page 3, “Adjustments for Items Unpaid by Seller” |
| Seller already paid a bill that runs past closing (advance) | California sale in the spring after both installments are paid | Buyer reimburses seller for the buyer’s days | Page 3, “Adjustments for Items Paid by Seller in Advance” |
| A bill is due at or right after closing | Installment due within days of closing | Often paid from closing funds, then prorated | Page 2 or the seller’s column, plus a page 3 adjustment |
The CFPB’s Closing Disclosure explainer (opens in a new tab) describes the first case as “Prior taxes and other fees owed by the seller that you will pay in the future. The seller is reimbursing you now to cover these expenses.” It describes the second as “Costs that have been prepaid by the seller that you are now reimbursing the seller for.”
The basic math, step by step
This is a hypothetical example, not a local rule. Assume an unpaid calendar-year tax bill of $3,650, a 365-day year, and an agreement that assigns 100 days to the seller and 265 days to the buyer. Assume the buyer will pay the whole bill later.
- Daily amount: $3,650 ÷ 365 = $10.
- Seller’s allocated share: 100 × $10 = $1,000.
- Buyer’s allocated share: 265 × $10 = $2,650.
Under those assumptions, a $1,000 seller-to-buyer credit allocates the seller’s share. The collector still needs the full $3,650 when due. If the seller had already paid the entire bill, the same allocation would instead call for the buyer to reimburse the seller $2,650.
Changing the bill amount, day-count convention, or responsibility date changes the result. An arithmetic check confirms that the worksheet is internally consistent. It cannot confirm that its assumptions match the contract.
Worked example: Texas, paid in arrears
Texas bills arrive late in the year. Under Tax Code §31.01 and §31.02 (opens in a new tab), the assessor mails bills “by October 1 or as soon thereafter as practicable,” and taxes are delinquent “if not paid before February 1 of the year following the year in which imposed.” So in a spring sale, nobody has paid the current year’s tax yet.
The standard Texas resale contract handles this in paragraph 13. The current TREC One to Four Family Residential Contract (Resale), form 20-19 (opens in a new tab), says taxes for the current year “will be prorated through the Closing Date.” It adds: “If taxes for the current year vary from the amount prorated at closing, the parties shall adjust the prorations when tax statements for the current year are available.”
Hypothetical example: Closing is April 30, 2026. The 2025 bill was $7,300, and the parties use it as the 2026 estimate.
- Seller’s days, January 1 through April 30: 31 + 28 + 31 + 30 = 120.
- Daily amount: $7,300 ÷ 365 = $20.
- Seller credit to buyer: 120 × $20 = $2,400.
The buyer then pays the full 2026 bill before February 1, 2027, usually through escrow. Suppose the bill arrives at $8,030 because the seller’s over-65 exemption no longer applies. The seller’s true share was 120 × ($8,030 ÷ 365) = $2,640, so under paragraph 13 the seller owes the buyer another $240. The contract also lets the closing agent factor in “any change in exemptions that will affect the current year’s taxes” at closing, which avoids most of that true-up. Ask whether it did.
Worked example: Cook County, Illinois, a year behind
Illinois taxes run a full year in arrears. Tax year 2025 is billed and paid in 2026. In Cook County, the Treasurer explains (opens in a new tab) that the first installment “is 55 percent of the previous year’s total tax.” For tax year 2025, the first installment was due April 1, 2026 and the second October 1, 2026, according to the Treasurer’s payment page (opens in a new tab).
Because the current year’s bill is unknown at closing, Illinois parties frequently prorate on the last known bill, sometimes with a cushion. One example is the contract language quoted in Czarobski v. Lata (Ill. App. 2007), as summarized by Katten Muchin Rosenman (opens in a new tab): “Prorations of general taxes shall be on the basis of 105% of the last ascertainable bill.” That percentage is a contract term and local custom, not a law. Buyers and sellers can and do negotiate other percentages.
Hypothetical example: Closing is June 30, 2026. The last full bill available is for tax year 2024: $6,000. The seller paid the 2025 first installment of $3,300 (55 percent of $6,000) in April. The contract prorates at 105 percent.
- Estimated full-year tax: $6,000 × 1.05 = $6,300.
- Unpaid 2025 tax (all seller’s): $6,300 − $3,300 = $3,000.
- Seller’s 2026 share, January 1 through June 30 (181 days): $6,300 × 181 ÷ 365 = $3,124.11.
- Total seller credit to buyer: $6,124.11.
The buyer then pays the 2025 second installment in the fall and both 2026 installments in 2027. Arrears plus a year’s lag is why a Chicago-area seller’s tax credit can be larger than half a year of taxes. If the last bill was based on a partial assessment, such as a house that was not finished, the Czarobski contract called for a separate written agreement, with money held in escrow, to re-prorate later. In that case the parties never signed one and ended up in court.
Worked example: California, paid in advance
California’s tax year runs July 1 to June 30. The Orange County Treasurer-Tax Collector (opens in a new tab) lists the first installment as due November 1 (delinquent December 10) and the second as due February 1 (delinquent April 10). A seller who closes in spring has often paid the whole fiscal year, including months the buyer will own.
Hypothetical example: Closing is March 31, 2026. The 2025–26 tax is $9,125, and the seller paid both installments. The buyer owns April 1 through June 30.
- Buyer’s days: 30 + 31 + 30 = 91.
- Daily amount: $9,125 ÷ 365 = $25.
- Buyer reimburses seller: 91 × $25 = $2,275.
This is only the regular bill. The purchase also triggers a supplemental bill on the increase in value, which is not prorated at closing and goes to the buyer.
365-day vs. 360-day prorations
Some worksheets divide by 365 and count actual days. Others treat every month as 30 days in a 360-day year. On the California example, the 360-day method gives $9,125 ÷ 360 × 90 days = $2,281.25, or $6.25 more than the 365-day result. In a leap year, a 366-day count changes the daily rate again. None of these is wrong in itself. The contract or local practice decides. What matters is that the worksheet uses one method consistently and says who owns closing day. The Texas form, for example, prorates “through the Closing Date,” which puts closing day on the seller.
When the actual bill is different
An estimate will almost never match the final bill. What happens next depends on your contract.
- Automatic true-up. The Texas resale contract requires the parties to adjust when the actual statement arrives. One side must still ask the other for the money.
- Final at closing. Many contracts make the proration final. A cushion such as 105 percent is meant to cover a likely increase so no later adjustment is needed.
- Re-proration agreement. When the estimate is shaky, as with new construction or a missing exemption, the parties can sign a separate agreement at closing, often with money held in escrow, to recalculate when the bill is issued. Make sure it says the agreement survives closing.
Keep the closing statement, the proration worksheet, and the contract. When the bill arrives, compare it with the estimate. If you are owed money under a true-up clause, send the seller or their agent the bill and the math promptly. New homes are the most common source of big differences; our new-construction guide explains why the first bill may cover only the lot.
How to read the tax lines on your Closing Disclosure
| Where | Label | What it means |
|---|---|---|
| Page 2, section F | Prepaids, property taxes | Tax money paid at closing toward a bill, named with the taxing authority |
| Page 2, section G | Initial Escrow Payment at Closing | A cushion deposited in your escrow account: monthly amount × months. Not a payment to the county |
| Page 3, buyer’s “Due from Borrower at Closing” | Adjustments for Items Paid by Seller in Advance: City/Town Taxes, County Taxes, Assessments | You reimburse the seller for days they prepaid |
| Page 3, buyer’s “Paid Already by or on Behalf of Borrower at Closing” | Adjustments for Items Unpaid by Seller: City/Town Taxes, County Taxes, Assessments | The seller credits you for their days; you pay the bill later |
The federal rule, 12 CFR 1026.38 (opens in a new tab), requires each prorated item on page 3 to show the time period it covers. Check those dates against the bill. The seller’s column on page 3 shows the same adjustments in reverse.
What to do before and after closing
- Ask for the proration worksheet a few days before closing. Find the tax amount used, its source, the percentage, and the day count.
- Check the dates on page 3 against your contract and the tax year on the bill.
- Look for exemption changes. If the seller had a senior, veteran, or homestead benefit you will not have, the estimate should reflect it, or the contract should provide a true-up.
- Name the payer for every open bill. If the closing agent is paying one, get the disbursement reference. If your servicer will pay, confirm the parcel and due date.
- Check the county account after closing. A credit on paper does not mean the collector got paid. If the bill still names the seller, see why the bill shows the previous owner.
For the full first-year timeline, use the new homeowner’s property tax checklist. To estimate what you will owe in later years, see how to estimate property taxes before you buy. To look up the bill itself, find your county tax collector. State specifics are in our Texas, Illinois, and California guides.
Frequently asked questions
Who pays property taxes in the year a house is sold?
Both parties, by days of ownership. The seller covers January 1 (or the start of the tax year) through closing, and the buyer covers the rest. Usually one party pays the collector and the other settles up through a closing credit.
Why did the seller give me a property tax credit at closing?
Because the taxes for the seller’s months were not yet paid. In arrears states like Texas and Illinois, the seller credits you for those days and you pay the full bill when it comes due. Save that credit for the bill.
What does 105% tax proration mean?
The proration uses 105 percent of the last known full-year bill as an estimate of the current year’s tax. It appears in Illinois contract language and is meant to cover an expected increase. It is negotiated, not required by law.
What happens if the property tax bill is higher than the proration?
It depends on the contract. The Texas resale contract requires the parties to adjust when the actual bill is available. Many other contracts make the closing proration final unless the parties signed a separate re-proration agreement.
Are property taxes prorated using 365 or 360 days?
Either can be used. The contract or local custom decides. On a typical bill the difference is a few dollars, but ask which method the worksheet uses and who is charged for closing day.
Does the proration credit mean my taxes were paid?
No. A proration moves money between buyer and seller. Check the county tax account or the servicer’s escrow records to see whether the collector actually received payment.