Tax Prorations in Real Estate Transactions - What Are They? Why Do We Need Them? and Other Questions from Title Processors, Closers and Escrow Officers
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If there’s one thing that can throw a wrench into an otherwise smooth closing, it’s a misunderstood tax proration.
These little line items may look simple, but they carry big consequences—and title processors, notary closers, and escrow officers are the ones holding the calculator when the questions start flying. Whether you’re explaining credits to a confused buyer or fixing a software hiccup at the closing table, understanding how prorations work is essential.
So, we’ve rounded up your most common questions and broken them down into plain English. No legalese. No fluff. Just the critical stuff you need to get it right (and avoid the angry post-closing phone calls).
❓ What is a Tax Proration—and Why Do We Do It?
🔓When a property is bought or sold, the seller and buyer both owe a share of that year’s property taxes—based on how long each of them owns the home during the tax year. That split is called a tax proration.
Since property taxes are usually paid once a year, but ownership is changing mid-year, we need to settle up at closing. The goal: make sure each party pays only their fair share, down to the day.
Depending on the time of year the closing is taking place, it can mean that the taxes aren’t even due until months after closing. Without a proper tax proration at settlement, the buyer can get stuck with the whole bill post-closing.
Tax proration isn’t just a math problem—it’s a trust-builder. Done correctly, it keeps both sides confident the settlement is fair and transparent. Done wrong? It creates headaches, calls from upset clients, and post-closing drama.
That’s why you are here—to get it right, every time.
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❓ Where Do Tax Proration Shows Up in the Settlement Process?
🔓Tax prorations appear on the Closing Disclosure (CD) as either a charge or a credit—depending on who’s owed what. If the seller already paid the taxes, the buyer reimburses them. If the taxes haven’t been paid, the seller usually credits the buyer for their share.
Either way, it’s your job to calculate the numbers and plug them into the right section of the CD—Section F (Prepaids) or Section K/L (Adjustments).
❓ Why do I need to know how to calculate a proration? My software does it for me.
🔓 Until it doesn’t.
Yes, your software usually handles prorations. But when it spits out bad data—or crashes entirely—you need to understand how it works in order catch errors and know how to do the math yourself, because sometimes that the only thing that works.
Plus, buyers and sellers will ask questions.
“What’s a tax proration?” “Why am I getting charged this much?”
If you don’t understand what the software is doing behind the scenes, you won’t be able to explain it—and you’ll lose credibility fast.
And let’s be real: closings are unpredictable. Errors, adjustments, or last-minute negotiations happen at the table with nothing but a pen, a pad, and the calculator on your phone. If you can’t calculate a proration by hand, you can’t confidently handle the job when it matters most.
In the end, if the numbers are off, the only person they're calling is you. Knowing how to do the math by hand means you can catch mistakes fast, explain your numbers with confidence, and protect your team from post-closing messes.
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❓ Who pays for the day of settlement?
🔓 The party responsible for the taxes on day of settlement is generally determined according to local custom.
❓ What if the tax bill hasn't been issue yet?
🔓 If the current year tax bill hasn't been issued yet, you'll do your tax proration based on the previous year's tax rate.
❓ What’s the difference between paid and unpaid tax prorations on the CD?
🔓 It comes down to who’s already paid the taxes.
If the seller already paid the current year’s taxes, then the buyer reimburses the seller. On the CD, this appears as a charge to the buyer and a credit to the seller.
If the taxes haven’t been paid yet, the seller credits the buyer for their share. The buyer will then be responsible for paying the full bill when it comes due. On the CD, this shows as a credit to the buyer and a charge to the seller.
💡
Seller Paid = Buyer Reimburses
Unpaid by Seller = Buyer Receives a Credit
❓ Who decides who pays the current year outstanding taxes at closing?
🔓A brief answer: usually contract terms and local custom—but settlement agents must verify.
Some companies always charge the seller the current year taxes, and calculate the proration as a buyer reimbursement to keep things consistent and reduce errors.
❓ What if a seller was exempt and the buyer isn’t?
🔓 This is where post-closing surprises come from—so it’s critical to get ahead of it.
If a seller had a tax exemption (like homestead, over-65, disabled vet, etc.) and the buyer doesn’t qualify, the exemption can be removed after closing—triggering a supplemental bill for the difference.
If you don’t disclose this up front and prorate accordingly, the buyer gets hit with an unexpected tax bill—and they will absolutely come looking for answers.
✅ Best practice: Confirm whether any exemptions are in place, whether they’re transferable, and if a rollback or adjustment is likely. Then note it in your file and flag it for disclosure.
You don’t need to be a CPA to handle prorations like a pro—but you do need to know how the math works and what the numbers mean.
When you can confidently explain tax credits, handle curveballs, and calculate by hand when tech fails, you’re a title professional who can handle anything.
To help you out, here at the Wicked Title Forum, we've built the WickedSplit series of tools and guides to make your life easier.
First up is the WickedSplit Tax Proration Calculator on our website. It's free to use and can bail you out of a jam at the settlement table where all you have is a pen, paper, and your phone. Instead of breaking out your general calculator and hoping you remember how it all works, bookmark this tool at WickedTitleForum.com/wicked-title-tools for emergency use.
We've also bundled up this awesome calculator so you can rebrand it, put it on your website, and claim you're the most tech savvy title agency in town. It will be our little secret that all you had to do was copy/paste some text on your website and like magic this awesome piece of tech appeared!
And finally, we created a step-by-step training manual to help you onboard new staff and level up your customer service skills. It breaks down the tax proration calculations, piece by piece, so everyone in the office will understand exactly what's happening behind the scenes in your software and be able to troubleshoot errors with ease.
Print this, save it, bookmark it—whatever you do, keep it handy. Because tax questions don’t wait until you’re “free.” And now? You’ve got answers.
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Stay Wicked,
Cheryl
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The information provided here (including, but not limited to instructions, steps, or forms) is for general guidance and educational purposes only. I am not an attorney and am not giving legal advice. Information should not be considered legal, underwriting, or financial advice and is followed at your own risk. Readers should consult with their attorney and/or underwriter to obtain advice tailored to their specific circumstances.