Real estate taxes are confusing. Between how they’re billed, when they’re paid and how they’re split between buyer and seller, it’s easy to feel overwhelmed—and the last thing you want is to be surprised on closing day.
That’s why Expert Title wants to help you understand tax prorations and how they are applied when you’re buying or selling real estate.
In Ohio, property taxes are collected twice a year, usually in February and July. That part is straightforward, but here’s where it gets confusing. They’re paid in arrears, which means when you pay a bill in February, it’s actually covering the first half of the previous year.
So, when a home changes hands, it must be ensured that the buyer and seller pay their fair share for the time they owned the property. That’s the purpose behind a tax proration.
What Is a Tax Proration?
Simply put, a tax proration is a credit from the seller to the buyer for property taxes that haven’t been paid yet but cover the time the seller owned the home.
Let’s say you close on a home in August. The tax bill due in February of the following year will cover January through June of the current year. Since the seller owned the property during that time, they’ll credit the buyer at closing for their share, even though the bill hasn’t arrived yet.
This way, when that bill comes due, the buyer isn’t paying taxes for a time they didn’t own the home.
Short vs. Long Tax Proration
In Ohio, there are two common ways to handle tax proration, and which one applies depends on what’s written in the purchase contract. This is something buyers, sellers and agents agree to as part of the deal, so it’s important to understand the difference. Often, which one is used varies from county to county.
- Short Proration: The credit only covers the current half-year period (usually six months). This method is most common in Montgomery County (but not required).
- Long Proration: The credit covers the entire tax year (from January 1 through the closing date). Some counties and contracts default to this approach.
No matter which method is used, Expert Title will follow the contract and calculate the appropriate credit so that each party only pays for the time they owned the home. We’re also happy to explain the local norms or walk you through what’s most common in your area.
How Is Tax Proration Calculated?
Once the proration method is agreed on, here’s how the calculation works:
- Take the annual property tax amount (based on the latest tax bill).
- Divide that by 365 to get the daily tax rate (also known as the per diem).
- Multiply that daily rate by the number of days from the start of the current or prior tax bill (depending on the proration method of long or short shown on the contract) which would either be January 1st or July 1st.
That amount becomes a credit to the buyer and a charge to the seller on the closing statement.
Let’s look at an example.
Scenario:
- Annual property taxes = $3,650
- Daily rate = $10/day
- Closing date = May 19, 2025
With the Short Proration Method:
- This method covers only the current half-year, starting from January 1 through the closing date.
- Poration period from January 1, 2025 through May 19, 2025 = 139 days
- 139 days × $10/day = $1,390
- The seller credits the buyer $1,390
With the Long Proration Method:
- This method covers the entire tax year starting from July 1 of the previous year through the closing date.
- July 1, 2024 – May 19, 2025 = 323 days
- 323 days × $10/day = $3,230
- The seller credits the buyer $3,230
As you can see, the difference can be significant, and that’s why the proration method is always agreed upon in advance.
What About Commercial Deals?
The same principles apply. Whether it’s a home or a commercial property, the goal is the same: make sure each party pays their required portion. Commercial contracts often use long proration, but again, it depends on the agreement.
We know tax proration can be confusing—and honestly, you’re not alone if all this makes your head spin! Don’t worry! Expert Title has walked hundreds of buyers, sellers and agents through it, and we’re here to make sure it’s handled correctly, clearly and without any unwelcome surprises.
Have questions? Reach out at 937-291-4201 or send us an email at pro@etescrow.com.