Prorating Real Estate Taxes
Property tax bill may raise questions

The first half of 1997 is winding down, and for homeowners in the Dayton area - particularly Montgomery County - that means real estate tax time.

Granted, most of us never actually see our semiannual tax bills, since the real estate taxes are included as part of our regular mortgage payment. But, nonetheless, many homeowners do get that bill. And to potential homebuyers and sellers, this bill can often be an item that raises questions at the closing table.

The questions arise from the issue of proration of real estate taxes. For example, all too often, area Realtors, lenders and title company representatives hear questions like this one: "I just received a real estate tax bill for the second half of last year. I just bought this house. Should I have to pay these taxes even though I did not live in the house at that time?"

The only answer I can give you is that in Montgomery County, the buyer has agreed to pay the bill according to previsions outlined in the purchase contract. An example of this can be found in the standard purchase agreement of the Dayton Area Board of Realtors.

Under section number four of DABR's contract to purchase real estate, the buyer agrees to pro-rate taxes, according to the "short" proration method. Let me explain how this works.

If a property is purchased in the first six months of the year (January - June), the buyer agrees to take over real estate taxes beginning with the June installment which represents the second half of the previous year's tax. 

Taxes would be pro-rated from January 1 to the date of closing, with the amount normally deducted from the purchase price. Once the June installment is due, the buyer uses the moneys prorated at closing along with his or her portion (closing date to the end of June) to pay that installment.

If the property is purchased in the second half of the year (July - December). the buyer agrees to take over taxes beginning with the December installment, which represents the first half of the current year's taxes.

Taxes would be prorated from July 1 until the closing date. The buyer would use moneys prorated along with his or her portion (closing date to the end of December) to pay for the first half of that year's real estate taxes.

While this may seem unfair, home buyers should realize that when they sell that property, the taxes will be pro-rated in the same way. As long as the same short proration policy is applied when the property is sold, then the playing field is level.

Taxpayers should contact their title company representative with any specific questions regarding their purchase agreement. 

And if you have any other questions about the home buying or selling process, open your Internet Browser and key in www.dabr.com. Our web site has information that will help you make your next real estate transaction a smooth one.

Excerpted from the Dayton Daily News's Real Estate Plus section, Sunday, July 13, 1997. Authored by Frank L. Gilland.
Frank L. Gilland is a past-president of the Dayton Area Board of Realtors.