How to Calculate City & Town Taxes at Closing
- 1). Keep in mind that closing costs can be distributed however the buyer and seller agree. In terms of property taxes, this means that as long as the taxes get paid, the government doesn't much care who pays them. However, there is a standard method for splitting these costs.
- 2). Estimate the closing costs based on last year's property taxes. If you're the original owner or have access to the original owner's records, look up how much was billed by the city, town and/or county last year. This will give you a pretty good idea of the amounts involved and may be sufficient if the final closing costs will be calculated by a professional. However, if you're preparing the sale documents yourself, you will need to find the exact tax numbers for this year.
- 3). Contact the regional property tax departments for exact figures. Staff there should be able to tell you what the current year's tax on the property is. In most locations you will owe separate property taxes to the town or city and the county, so you may need to check with more than one office.
- 4). Determine, based on the closing date, what percentage of the past calendar year the property will have been owned by the original owner. For example, if the closing is at the end of March, the first owner is responsible for three months, or 25 percent of the current year.
- 5). Multiply this percentage (expressed as a decimal, in this case .25) by the total yearly property tax costs. For example, if the taxes are $1,000 for the current year, the original owner will owe the new owner $250 as part of the closing costs. In effect, this means either that the buyer will pay $250 less than he otherwise would have. However, in some cases involving a mortgage, the original owner will pay this amount to the mortgage company instead, which will then bill the new owner for the rest of the year and pay the property taxes for both parties when they come due.
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