How to Calculate Property Tax Prorations

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In most real estate transactions in Florida, property taxes for the current year will have been paid, leaving the buyer with the entire property tax bill. To make sure everyone pays their fair share, a proration of the property taxes is calculated.
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In most real estate transactions in Florida, property taxes for the current year should have been paid by the listing side, but we might encounter a case that the buyer will be paying the entire property tax bill, which is not good at all. To make sure everyone pays their fair share, a proration of the property taxes is calculated.

The first question you’ll have is, “when do you normally pay Property Taxes in Florida”, the answer to that is every 1st of November of the current year, now we will discuss if you are responsible for paying the Property Tax if you bought a property prior from the payable date.

For you to ace your real estate exam you need to know first these details given information before you even do the calculation:

Day of Closing: this will be the specific date that the deal was closed from the seller’s side and the buyer’s side.
Who Pays for Day Closing: from this point, you will confirm whether it will still be the seller/listing side will handle the Day Of Closing, or it will be shouldered by the buyer’s side

Property Tax Bill: the total amount of the property tax

Taxes Paid: the property tax status for that year. You need to take note, if the property is not yet paid, buyer side will receive the credit from the prorated calculation. If it is paid by the seller, the prorated calculation from the buyer’s side will serve as a credit to seller/listing side.

 

3 Ways of Prorated Calculation:

1. 365 Calculation - doing this prorated calculation, you need to get first the daily rate of the total property tax amount starting from the January 1st, until the close date of the property. After getting the daily rate, you can then multiply this from the total number of days that the property seller still has property ownership (January 1st and a day before the close date) and that will be the share of the property seller and the difference will be shouldered by the buyer’s side. It sounds pretty tedious right? But once you have the catch of this kind of calculation you can then do this from the back of your mind.

2. Proportion Calculation - X = ( seller’s # of days  * total amount tax )  / 365 days

  • This is an easy formula that you can use to quickly get the prorated property tax that you can advise to your buyer’s side, the only cons is, you need to have the value presented already, otherwise you need to do the calculation to get that value.

3. Paid Property Tax Calculation - this type of calculation will be for the benefit of reimbursing the seller’s side of the amount that the buyer side owned the property already. It is not going to be far-fetched from how the 365 days calculation works, the only difference is, you will have to get the number of days the buyer has owned the property (from the close date until December 31). After doing so, then you can get the daily rate then have it multiply to the number of days that the buyer owned the property.

Now, you do know how to calculate prorated property taxes which can help you on your real estate licensing exam, also being well-versed on this calculation can be a deal breaker once you have your potential client on the closing table.

 


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