How Many Months of Property Taxes Are Collected at Closing in Texas?
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For new or prospective homeowners,of buying a house is an exciting life event. However, while seasoned homeowners will likely be familiar with the costly responsibility of property taxes, it is easy for new home buyers to overlook these costs when putting together their budget.
Working out who owes what during a house sale can be rather complicated. It can generally be left to the title company, realtor, or lawyer, but it is worth understanding how it works so you know what you have to pay and why.
How Much Do You Pay in Property Taxes at Closing?
As property taxes are paid in arrears in Texas, both the buyer and seller will have property tax payments due at closing. Luckily, the title company typically determines the exact amounts owed when calculating each party’s property tax liability.
When buyers review their closing disclosures (CDs) during a home sale, they will see sections detailing additional costs required before closing. Some of these costs, such as homeowner’s insurance, property taxes, and interest, are known as prepaid expenses because they must be paid in advance.
Lenders charge these prepaid costs to help buyers stay current on these payments, thereby protecting their first lien position. For example, a buyer not paying property taxes could result in the county taking lien priority from the lender, so lenders fund an escrow account as a part of the closing costs. Generally, home buyers will likely need to pay a minimum of three months’ worth of property taxes in advance when they close on purchasing their new home. In rare cases, homeowners are required to pay the first year of taxes or even more as part of the closing costs. However, some sellers offer to pay the property taxes for the entire year to make the sale more attractive to prospective buyers.
As for the actual property tax bill for the sold property, the liability is usually split between the buyer and the seller. Most commonly, property taxes at closing are prorated. This means the seller will pay the property taxes owed before closing, and the buyer will be responsible for the property taxes due after closing.
How property taxes are handled at closing in Texas may seem complicated, still, luckily the lender or title company will provide buyers with a ‘cash due at closing’ document that details all the necessary costs, including their property tax obligation.
Who Pays Property Taxes at Closing in Texas?
In a real estate transaction, property tax responsibilities are split between the buyer and seller based on the portion of the year’s ownership. Taxes are typically prorated at closing, meaning the seller pays for their time owning the property prior to closing, while the buyer takes responsibility for taxes owed after the closing date.
If the seller has already paid annual property taxes, they receive a credit from the buyer for the days they will no longer own the property. Conversely, if taxes are unpaid, the buyer receives a credit back to the seller for the seller’s portion. These adjustments ensure both parties fulfill their obligations fairly.
The title company calculates these prorations and includes them in the closing statement, so buyers and sellers can review the breakdown. Understanding this process is crucial for both parties to manage their responsibility to pay taxes accurately without surprises.
If Property Taxes Are Paid in Arrears, Why Do You Have to Pre-Pay Them When Buying a House?
It all depends on the tax cycle. Your lawyer or realtor will calculate how much you and the seller will each owe in taxes. In addition to other factors, the amount allotted to each of you will depend on when the house officially changes hands. The seller will have to pay a prorated amount for the portion of the year before the sale takes place. Everything after that point is your responsibility as the buyer.
How is the Tax Liability Calculated and Pro-Rated?
It is good for buyers and sellers that the pro rata calculation is generally left up to the experts because it can be quite challenging. It is a good idea for you as a buyer to understand how the process works, because you will become responsible for paying the property taxes as soon as the property is transferred into your name. The method is as follows: take the total tax amount due for the year and divide it by 12 to get a monthly amount. Next, divide that monthly total by 30 to get a daily amount. That daily rate can then be multiplied by the number of days the seller owns the house during that year - this will give you the total that the seller owes in taxes. The remaining number of days is your responsibility, and you can multiply that number by the daily rate to arrive at the total you owe. Usually, you would pay the full amount, and the seller would then provide you with a credit for the total they owe for their share of taxes within that year.
Again, it is essential to remember that this is how it is usually done, but the buyer and seller could agree to do it differently. Perhaps the seller could offer to cover the entire year’s taxes to increase the chance of making the sale. Conversely, the buyer could make a similar proposal to sweeten their offer to purchase.
Can You Take the Total Paid at Closing As a Fair Representation of What You Will Pay in the Future?
Generally speaking, the tax bill on a property won’t change from year to year. For example, if there is a $5,000 tax bill at the time you purchase the property, that is what you should expect to pay in your first full year as the owner of the property, and every year after that unless you make substantial improvements to the property or the county tax rate changes. If you find a sudden increase in taxes during the first year after you take possession of the property, it could be because the seller was eligible for certain exemptions that you are not entitled to. Perhaps the previous owner was a senior citizen or a veteran. The bill you split with the seller at the time of closing would, therefore, have been calculated with the applicable exemption taken into account. Now that you have become the property owner, that exemption no longer applies, and the total you owe will be higher.
How Property Tax Exemptions Can Impact Your Tax Bill
Tax exemptions, such as those for senior citizens, veterans, or disabled homeowners, reduce the amount of property taxes owed. When a property has a seller’s exemption, it may lower the annual property taxes during their ownership. However, buyers not eligible for the same exemption could face higher taxes in future years.
At closing, tax prorations reflect the seller’s reduced liability under any applicable exemptions. Buyers must review property records and confirm with their title company whether they can qualify for similar benefits. If no exemption applies, buyers may need to adjust their budget to account for the higher tax rate.
To secure applicable reductions, buyers should check property search records and file an exemption after the date of closing. This ensures future taxes align with their eligibility, avoiding unexpected increases when the tax bill is due.
Are Property Taxes Re-Assessed When You Buy A House in Texas?
The property will not be reassessed just because it has been sold. Furthermore, if the purchase price was more than the home’s market value (or less), this will not change the property taxes either. However, the sale may figure into the future appraised property value.
Property taxes in Texas are determined based on the appraised value of a property. Every year, local appraisal districts determine the appraised value of a property (based on the market value, which ultimately relates to your purchase price), which is used to calculate how much each property owner will need to pay in taxes.
Texas county appraisal districts are responsible for conducting fair market appraisals to determine the taxable value of homes within their boundaries. Notices of appraisal values are sent out annually, but Section 25.18 of the Tax Code requires appraisal districts to reappraise all properties in their jurisdiction every three years.
Will You Still Have to Pay Property Taxes After You Have Paid Off Your Mortgage? 
Some people believe that property taxes on new homes end when their mortgage is paid off. This may be because most people pay their property taxes in monthly installments that make up part of their mortgage payment (through an escrow), so it is assumed that after the mortgage has been paid off, the property tax payments will stop too. This isn’t true. So, how long will you need to pay property taxes? Property taxes will be due for as long as you own the property. If you had previously been paying your property taxes through an escrow account but have since paid off your mortgage, you will now need to make payments directly to your local tax collector for as long as you own the property. Property tax payments are considered delinquent as of February 1st of each year, and the tax collectors will begin charging penalties and interest after this date. Unpaid taxes, penalties, and interest can result in attorney fees, liens, and even foreclosure if they remain unpaid for an extended period of time.
Unfortunately, it is impossible to completely avoid paying property taxes. However, senior citizens may qualify for deferrals, and there are exemptions available for veterans and disabled residents. Additionally, other property tax reductions can be explored.
About AFIC
If you should ever find yourself falling behind on your Texas property taxes, whether before or after a sale, your best option is to apply for a fast and convenient property tax loan from American Finance & Investment Co., Inc. (AFIC). When property tax bills fall into arrears, they quickly start to accrue penalties and interest. You could arrange a payment plan with your local tax authorities, but this is a more expensive process and takes much longer to complete. With our property tax loans, your tax bill will be settled instantly, and you will be able to pay back the loan at a rate and pace that works for your budget and schedule.
Founded in 1946, AFIC started by serving the financial needs of El Paso and has since grown to become one of the top property tax lenders in the state of Texas, with a complaint-free track record for over 65 years with the Better Business Bureau. We offer our clients an affordable, hassle-free way to ensure that your account with the local government tax office is paid in full and will work out a manageable repayment plan for you. AFIC can provide you with an instant quote by completing the form on our homepage. For qualifying properties, we can help you pay off your delinquent taxes and offer you the following benefits:
- Quick and completely online process
- No money down
- No credit check
- Free 30-day rate match
- Match competitors and beat their rate by 1%
- Avoid high penalties and foreclosure
We pride ourselves on finding solutions to suit the unique needs of our clients. If you would like to discuss our property tax loans, please contact our experienced team at AFIC today.
