Do You Pay Property Taxes for the Previous or Current Year?

Property taxes are a fundamental component of local government finance and a significant obligation for homeowners. Levied on real estate, they are a primary funding source for public services. This revenue supports local schools, maintains roads and infrastructure, and funds essential emergency services like fire and police departments. Understanding property taxes is important for anyone who owns real property.

Understanding the Property Tax Period

Property taxes are assessed based on a property’s value as of a specific “assessment date” or “valuation date.” This date often precedes the actual tax year for which the bill is issued. For instance, a property’s value on January 1, 2024, might determine the tax bill for the 2024 tax year, even if that bill is not sent until later. While the valuation process looks at a past point in time, the subsequent tax bill covers a current or future period of ownership.

The specific tax period covered by a property tax bill can vary across different jurisdictions. Some areas operate on a calendar year (January 1 to December 31), while others use a fiscal year (e.g., July 1 to June 30). The assessment process calculates the tax amount based on the property’s assessed value and the local tax rate. Even if the assessment relies on a past valuation, the payment is almost always for the current or an immediately upcoming tax period.

Typical Payment Schedules

Property tax payments are due according to schedules set by local taxing authorities, which can vary across the country. Common frequencies include annual, semi-annual, or quarterly payments. Tax bills are mailed to property owners well in advance of their due dates. For example, a bill for the current year might be issued in October with a due date in March of the following year.

Many homeowners pay their property taxes through a mortgage escrow account. In this arrangement, the mortgage lender collects a portion of the estimated annual property tax with each monthly mortgage payment. The lender then holds these funds in the escrow account and disburses the full tax payment directly to the tax authorities when due. This system helps homeowners avoid large lump-sum payments and ensures timely payment. Homeowners who do not have an escrow account are responsible for paying their tax bills directly to the local tax collector by the established deadlines.

Property Taxes When Buying or Selling

When a property is bought or sold, existing property taxes are “prorated” between the buyer and the seller. Proration is the process of dividing financial obligations, such as property taxes, based on the closing date of the sale. This ensures that each party pays for the portion of the tax period during which they owned the property. The goal is to fairly allocate the tax burden.

The specific calculation for proration depends on whether taxes are paid in arrears (for a past period) or in advance (for a future period). If taxes are paid in arrears, the seller will give the buyer a credit at closing for the taxes accrued during the seller’s ownership up to the closing date. Conversely, if taxes are paid in advance, the buyer would reimburse the seller for any taxes the seller paid that cover the buyer’s period of ownership after the closing date. These adjustments are handled by the title company or closing attorney and are itemized on the closing disclosure statement.