How are property tax prorations calculated at closing?

• A. Divide the annual taxes by 365 to get daily taxes, the seller pays for days before closing and the buyer pays for days after closing.
• B. Divide by 360 days to determine daily taxes and assign costs.
• C. Proration is based on calendar months only, regardless of closing date.
• D. Property taxes are not prorated at closing.

Answer: (A)

Property tax prorations at closing are about converting the annual tax into a daily amount and then allocating those days between the seller and the buyer based on ownership during the tax year. The daily tax is found by dividing the annual taxes by 365. Then you count the days the seller owned the property before closing and the days the buyer will own it after closing. The result is that the seller pays for days before closing and the buyer pays for days after closing. This method reflects taxes being paid in arrears and ensures a fair, precise split for the portion of the year each party owns the property. Using a 360-day year is for mortgage interest, not taxes, and prorating strictly by calendar months would ignore the actual closing date and daily tax amount, which would be unfair.