Do You Get a Property Tax Refund When You Sell Your House?

When selling your house, the year’s property taxes are divided between you and the buyer. This is not a refund from the government, but a credit handled at closing. The process ensures that you and the buyer each pay taxes only for the portion of the year you owned the property. The outcome—whether you receive a credit from the buyer or give one to them—depends on when property taxes are paid in your area. This transaction is a standard part of the home-selling process managed by the closing or settlement agent.

Understanding Property Tax Proration

Property tax proration is the method used to divide the cost of property taxes between the seller and the buyer. This allocation is handled by the closing agent, title company, or real estate attorney to ensure a fair distribution. In many areas, property taxes are paid in advance, covering a future period like the next six or twelve months.

If you sell your home after prepaying these taxes, the buyer will owe you a credit for the portion of the tax period they will own the home, essentially reimbursing you. In other jurisdictions, property taxes are paid in arrears, meaning the bill covers a period you have already lived in the home. At closing, you will give the buyer a credit to cover the taxes for the days you owned the property, which the buyer will then use toward paying the full tax bill when it becomes due.

How Property Tax Proration is Calculated

To determine the proration amount, the closing agent needs the property tax bill, the period it covers, and the closing date. If the current year’s tax bill has not yet been released, the calculation is based on the most recent available tax bill. This amount may be increased by a percentage, such as 105% or 110%, to anticipate a potential tax hike and protect the buyer from a shortfall.

First, a daily tax rate is established by dividing the total tax bill by the number of days in that period; some jurisdictions use 365 days, while others might use a 360-day “banker’s year.” Next, the closing agent counts the number of days each party is responsible for. The seller is responsible for the taxes up to, but not including, the day of closing, while the buyer is responsible for the closing day and all subsequent days.

Finally, the daily tax rate is multiplied by the number of days to determine the credit. For instance, if the annual property tax is $3,650, the daily rate is $10. If the home closes on July 1st and taxes were paid for the full calendar year, the buyer is responsible for the remaining 184 days, and the credit to the seller would be $1,840.

Locating the Proration on Your Closing Disclosure

You will find the property tax proration documented on the Closing Disclosure form, a standardized document used in all U.S. real estate transactions. This form provides a detailed breakdown of all costs and credits, and you should receive it at least three business days before your scheduled closing to allow for a thorough review. Look at page 2 of the Closing Disclosure, in the “Summaries of Transactions” section.

This page is divided into “Borrower’s Transaction” and “Seller’s Transaction” columns. If you receive a credit from the buyer for taxes paid in advance, it will appear as a line item in the “Seller’s Credits” section, increasing the total money you receive from the sale. If you provide a credit to the buyer for taxes paid in arrears, it will appear as a line item in the “Seller’s Debits” section, decreasing your total proceeds. The line item may be labeled “Proration of Taxes,” “Town/City Taxes,” or “County Taxes.”

Receiving an Escrow Account Refund

Separate from the property tax proration at closing is a potential refund from your mortgage lender’s escrow account. This account is where a portion of your monthly mortgage payment was held to cover future property tax and homeowners’ insurance bills. Once you sell your home, the proceeds are used to pay off your existing mortgage balance.

After the lender receives this final payment, they will audit your escrow account. Because lenders require a cushion of extra funds, it is common for a surplus to exist after the final tax and insurance payments are made. If there is a remaining balance, federal regulations require the mortgage servicer to mail you a refund check within 20 business days of the loan being paid off. This check comes directly from your former mortgage servicer and will arrive separately from your sale proceeds, typically within 30 to 45 days after the closing date.