U n d e r s t a n d i n g P r o p e r t y Ta x P r o r a t i o n s
What are Prorations?
In a typical real estate transaction, prorations are calculated when the buyer and the seller proportionately divide costs
to the time of use or the date of closing. Common prorations include property taxes, interest, insurance premiums,
homeowners association dues, rental income, etc.
Property Taxes
At closing, the most common prorations are for property taxes. This is because property taxes are typically paid at the
end of the year for which they were assessed. These taxes, however, can be paid as early as October 1st or as late as
January 31st of the next calendar year without penalty in most Texas counties.
In Texas, if a property closes before October 1st, the seller will generally be charged from January 1st through the closing date and the buyer will be credited for the same period. Generally, in closings that occur after October 1st when
official tax figures are released, title companies will normally charge each party their prorated tax amount and pay the
taxing authorities directly. This allows title companies to insure that taxes have been paid when issuing their mortgagee
title policies.
In the demonstration below, Line 211 of the settlement statement shows the seller crediting the buyer for taxes from
January 1st through the closing date, in this case September 1st. Once October comes around, tax notices will be sent
to the new owners who will be expected to pay taxes for the full year, taking into account the credit they received at
closing.
For more information regarding Texas property taxes visit Susan Combs Texas Comptroller of Public Accounts
website at: http://www.window.state.tx.us/taxinfo/proptax/index.html
H e r i t a g e T i t l e C o m p a n y o f Au s t i n , I n c .
Downtown Office
Frost Bank Tower
401 Congress Avenue, Suite 1500
Austin, Texas 78701
512.505.5000
Rollingwood Office
Rollingwood Center
2500 Bee Caves Road, Building 1, Suite 100
Austin, Texas 78746
512.329.3900
Tarrytown Office
The Carillon
2630 Exposition Blvd, Suite 105
Austin, Texas 78703
512.380.8900