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Property Taxes at Closing: Who Bears the Burden?

Written by:  

Marianne Hayes

Marianne Hayes

Marianne Hayes

Personal Finance Writer

Marianne Hayes is a contributing writer for Own Up. She has been covering personal finance and home ownership for over a decade.

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Fact Checked by:  

Mike Tassone

Mike is a Co-Founder and Chief Operating Officer of Own Up. He has expertise in all areas of residential lending, having led operations for a top 40 lender in the United States.

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A lot goes into finalizing a real estate transaction, and understanding who pays for all of the affiliated costs is an important piece of the puzzle. It’s often a confusing topic, especially where property taxes are concerned.

During a home sale, these taxes are prorated, which means that both the home seller and the buyer are responsible for a portion of the year’s property tax payments. The amount you ultimately pay depends largely on the closing date.

After the sale is final, many homeowners use escrow accounts to manage their ongoing property taxes. Knowing how it all works can help you show up to the closing table feeling confident and ready.

What Are Property Taxes?

Paying property taxes is part of being a homeowner. Local governments rely on these taxes to generate revenue to fund the police department, road maintenance, and schools. When taking out a home loan, a portion of your property taxes is usually prepaid during the closing process along with several other expenses you may expect to pay during this time:

  • Homeowners insurance: Your lender is likely to require you to prepay your first year’s premium.
  • Interest until your first payment is due: This is the interest that will accrue on your mortgage between the closing date and your first loan payment.
  • Mortgage insurance: If your down payment is less than 20%, you’ll probably need to purchase mortgage insurance. You can pay it upfront in full at closing, though most homeowners break up the cost and tack it onto their monthly mortgage payments.

How Much Do Property Taxes Cost?

Property tax payments can vary widely depending on your jurisdiction’s tax rate and your home’s value. The latter is especially important. Property owners in one state could pay much more than in another if median home values are higher in their area, even if the two states have similar tax rates.

The Tax Foundation analyzed 2021 data from the U.S. Census Bureau and found that property taxes paid in certain counties of New Jersey were among the highest in the country — sometimes topping $10,000. Counties in parts of California and New York were also up there.

But some states offer helpful tax exemptions. In Florida, for example, property owners who list their home as their primary residence may be eligible for a homestead exemption that reduces the property’s taxable value by up to $50,000.

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Who Pays For Property Taxes During a Real Estate Transaction?

Property taxes are generally split between the buyer and the seller based on the closing date. As an example, let’s say Mary bought a home from Joe and the sale closed in March. For that tax year, Joe would be responsible for paying the property taxes from January 1 until the closing date. Mary is on the hook for taxes from the closing date onward.

You can check the website of your county’s taxing authority to clarify when your property tax bill is due. If you own your home outright, you might pay quarterly, every six months, or annually. But if you have a mortgage, chances are you pay your real estate taxes through an escrow account (we’ll explain this in a second). Either way, working with local real estate professionals can ensure you get the most accurate information.

What Are Seller Credits?

In some cases, the seller may throw in some concessions, or credits, to sweeten the deal. According to the National Association of Realtors, that might include paying additional property taxes or covering other closing costs, such as:

  • Home inspection fees
  • Appraisal fees
  • Loan origination fees
  • Homeowners association fees
  • Loan origination fees.

How Are Escrow Accounts Used?

If you’re taking out a mortgage, your lender will likely set up an escrow account. The borrower will fund the account with prepaid funds, which can include a portion of the expected annual property taxes. This account serves as a holding place for these funds.

After closing, when the borrower makes their monthly mortgage payment, they’ll pay extra for future property taxes and insurance, which then gets funneled into their escrow account. When the insurance premium and tax bill are due, the lender will use the escrow funds to pay it on the borrower’s behalf. This setup helps ensure these costs get paid, but you can expect steeper closing costs and a higher monthly payment from it. Either way, your property taxes will need to be paid, so it’s really a matter of how you want to finance the payment: over time through your escrow account or in large lump sum payments when your bill comes due.

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Lenders estimate property tax payments but will make adjustments based on your actual tax bill. If you overfund your escrow account, you should be reimbursed after your next account assessment, which usually happens annually. If you’re running low, your mortgage lender may cover the difference for you and then increase your monthly payment to make up for it.

What Role Do Real Estate Agents and Title Companies Play?

Teaming up with the right real estate professionals can make for a smoother closing — and help you understand your responsibilities when it comes to property taxes. Consider the following:

  • Real estate agents can help you negotiate and walk you through the closing process and final contract. 
  • Title companies can help ensure a clean title transfer. These companies will look for existing liens, carry out a property survey, and provide a title insurance policy.
  • Real estate attorneys can help you navigate confusing real estate transactions. For example, you might have specific questions about state laws or concerns over zoning issues. Some states, such as New York and Massachusetts, require an attorney to buy a home.

What Do First-Time Home Buyers Need To Know?

If this is your first time buying a house, know that property taxes will be part of the equation. The same goes for other common closing costs. Understanding what to expect can prevent unwanted surprises when purchasing your new home. It also gives you a chance to prepare your budget and save more before making an offer.

The Bottom Line

You’ll still have to pay property taxes after the home sale is complete — even if you’ve paid off your mortgage. So saving little by little, or paying in installments, can help ease the financial burden.


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The information provided to you in Own Up blog is intended to be for general informational and educational purposes only and does not constitute legal or tax advice. This blog is not a substitute for obtaining legal or tax advice from a qualified professional. The views and opinions expressed on this blog are solely those of the authors and do not necessarily reflect the official policy or position of Own Up or describe Own Up's business model. Own Up makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.