When Do You Start Paying Property Taxes on a New Home?
Understand the financial mechanics of your first property tax payment. Learn how responsibility is determined and what payment structures to expect as a new homeowner.
Property taxes, levied by local governments like counties or cities to fund public services, are a recurring cost of homeownership. For a new homeowner, the process begins at closing and involves understanding how the first payment is handled and the methods for ongoing collection.
Handling Property Taxes at Closing
Your responsibility for property taxes begins the day you take ownership. This transition is managed at the closing table through proration, which divides the annual tax bill between the seller and the buyer. The seller is responsible for the taxes from the beginning of the tax year up to the closing date, while the buyer is responsible from the closing date onward.
This division is detailed on the closing disclosure statement. For example, if annual property taxes are $3,650 and closing occurs on March 31st, the seller is responsible for the first 90 days. The daily tax rate is $10, so the seller’s portion is $900. In jurisdictions where taxes are paid in arrears, the seller will provide a credit of $900 to the buyer at closing.
The buyer then becomes responsible for paying the entire tax bill when it comes due. The closing agent calculates these prorated amounts for accuracy. This credit from the seller gives the buyer the funds needed to cover the seller’s portion of the tax liability, preventing the buyer from being penalized for taxes accrued before their ownership.
Ongoing Payment Methods
After closing, homeowners pay their property taxes in one of two ways. The most common method for those with a mortgage is through an escrow account, managed by the mortgage lender. The lender estimates your annual property tax bill, divides it by 12, and adds that amount to your monthly mortgage payment.
These funds are held in the escrow account until the property tax bill is due, at which time the lender pays the local tax authority on your behalf. Lenders perform an annual escrow analysis to ensure they are collecting the correct amount. If property taxes increase, your monthly payment will be adjusted upward; if they decrease or if too much was collected, you may receive a refund or a credit.
The alternative is to pay the municipality directly. This is common for homeowners who do not have a mortgage or those who waive the escrow requirement, which some lenders allow with a significant down payment. The homeowner receives the tax bill directly from the local tax authority and is responsible for making the payment by the specified due dates, which are often in one or two large installments.
Special Considerations for New Construction
The property tax process for a newly constructed home has unique characteristics. When you purchase a new construction home, the property’s assessed value may only reflect the value of the land, not the structure. You begin paying taxes immediately upon purchase, but these initial payments are based on this lower, land-only valuation.
Once construction is complete, the local tax authority will conduct a reassessment of the property. This new assessment will include the value of the newly built house in addition to the land. Factors in determining this new value include the location, lot size, living area, construction quality, and the sale prices of comparable properties.
This reassessment results in a significantly higher total assessed value and property tax liability. Homeowners might see their tax obligation increase substantially after the structure is included in the assessment. This updated valuation is the direct cause of a supplemental tax bill.
Understanding Supplemental Tax Bills
A supplemental tax bill is a one-time bill issued following the reassessment of a property after new construction or a change in ownership. This bill covers the difference between the property taxes paid based on the old assessed value and the taxes owed on the new, higher assessed value. The amount is prorated for the period from the date of the change through the end of the fiscal tax year.
This supplemental bill is sent directly to the homeowner, not to the mortgage lender, and is not paid from your escrow account. You are personally responsible for paying this bill by the due date to avoid penalties, which can include a 10% penalty for late payment and additional interest charges.
The arrival of a supplemental tax bill can be a surprise, sometimes appearing weeks or even months after closing. The bill itself will detail the old and new assessed values, the dates the bill covers, and the total amount due. Homeowners should budget for this additional, un-escrowed expense.