Property Taxes: What Sellers And Buyers Can Expect at Closing and Post-Closing

Property tax payments and the proration of taxes done in escrow can be confusing for both buyers and sellers. Prorations of the taxes are done in escrow to reimburse either the seller or buyer for a portion of the bill that is not their responsibility. This post will give you an idea of how it all works.

 Understanding the due dates and tax installment periods will help you in understanding the debits and credits that you can expect to see on your closing statement. The annual tax bill is based on the fiscal year which covers the period from July 1st through June 30th of the subsequent year. The tax bill is separated into two equal payments, called installments, however only one bill is issued per year, usually in early October.

The dates covered in each installment, due dates, and delinquent dates are as follows:

 FIRST INSTALLMENT:

July 1st through December 31st

Bill due date: November 1st

Delinquent date December 10th.  A 10% penalty applies if paid after this date. (So, assuming you have the funds available, in my opinion, it’s best to pay both installments at the same time, once you get the bill. To be proactive, I suggest adding a recurring yearly calendar invite for November 1st to remind yourself to pay your taxes online, in case the bill gets lost in the mail. I pay mine online via ACH as there is no charge).

SECOND INSTALLMENT:

January 1st through June 30th.

Bill due date: February 1st

Delinquent date April 10th.  A 10% penalty applies if paid after this date.

 The property taxes are prorated in escrow, based on the close of escrow date. The tax payment status and installment period at close of escrow determines if the buyer or seller is credited or debited for the portion of the tax bill that isn’t their responsibility.   

Taxes for the Seller

The seller is charged the current tax installment in escrow, unless it has already been paid. The seller will receive a credit for a portion of the bill, which is called the tax proration, from close of escrow until the end of the installment period. If the tax bill hasn’t been issued yet, the seller will be charged their portion/proration of the bill that will be issued after close of escrow. The proration debited the seller is for the period of time that the seller owned the property, within the tax installment period billed, which is fair, and what you’d expect.

For example, if close of escrow is on November 1st, the seller would receive a credit from the buyer from November 1st until December 31st, which is the date the first installment is paid through. If the seller has paid both installments, the buyer would be debited from close of escrow through June 30th of the next year. If a tax bill hasn’t been issued at the time of closing, the seller is debited from July 1st until the close of escrow.  

Taxes for the Buyer

As mentioned above, if the taxes have been paid or are being paid by the seller in escrow, the buyer will be debited from close of escrow until the end of the period of the installment paid. Basically, the buyer is reimbursing the seller for their portion of the bill that the seller paid in advance.   

In cases when the tax bill hasn’t been issued, the seller would be charged for the prorated portion of the last bill and the buyer would receive a credit in escrow.  For example, if the close of escrow is September 1st, the buyer would receive a credit from July 1st until September 1st. The buyer would be responsible for the entire bill once it is issued. Note: This occurs when escrow closes between July 1st and pre-issuance of the tax bill by the Tax Collector. The tax bill is usually issued early October. 

Important Information Regarding the Current Tax Bill

The annual tax bills are only issued once per year however the bill contains two separate installments.  Escrow usually only pays the installment period that occurs at close of escrow unless required by the lender. The Buyer will not receive an updated bill after close of escrow. Once the bill is issued in the Seller’s name it will not be reissued or sent to the Buyer. Any tax bills due after close of escrow that haven’t been paid, are the Buyer’s responsibility, even if they don’t receive a bill or if the bill reflects the seller’s name. 

The tax bill will not be updated until the tax collector updates their records, however the buyer can access the tax bill information by going to the San Mateo County Tax Collector website and search for their property by either the Assessor’s Parcel Number (APN number) or the property address. 

Supplemental Tax Bills

Supplemental tax bills are issued when an event occurs that causes reassessment to the property taxes. Buyers will receive an additional tax bill called a “Supplemental Bill”, which is based on the new valuation of the property. The bill will not be issued until the tax assessor reassesses the taxes at the new valuation, which is based on the new sales price and valuation by the assessor.  

The Supplemental Tax bills are issued several months after the close of escrow. In a perfect world, you’d have this all dealt with as of the date of closing, but alas, it takes the County a few months to catch up and issue the supplemental bill, so don’t throw it out when you get it! Just know in advance that you’ll be getting one.  The bill will reflect the due dates and delinquent dates, which are different from the regular tax bills. These bills can also be accessed on the tax collector website.

Title companies have forms in the closing documents that provide information about the tax bills and supplemental bills. The escrow officer handling your transaction will also provide a more detailed explanation and further clarification if needed so you can feel comfortable and understand the process.

If you have specific questions around your closing statement, please be in touch with your escrow officer. If you have property tax questions, please refer to your qualified CPA who can best advise you. I am not an accountant.