Accurately Splitting the Tax Bill Between Seller and Buyer
In Chicago, when a property is sold, at closing the seller pays the buyer a property tax credit that is usually prorated based upon 110% of last year’s tax bill. When the actual tax bill is received, usually months later, sometimes the buyer received too large of a tax credit from the seller and other times the seller did not pay the buyer enough. In Florida and some other states, the parties usually sign a Tax Proration Agreement at closing which provides that when the actual property tax bill is received, it will be prorated based upon the days the seller was the owner and if the estimated proration that seller paid at closing was too low, the seller will pay the buyer the difference so that buyer receives an accurate, exact amount. A Tax Proration Agreement allows the buyer to receive an accurate proration and not just an estimate of 110% of last year’s bill. It is the only way to have a truly accurate and fair proration. If the seller cannot be located or refuses to honor the agreement, the buyer would have to legally pursue the seller. Depending upon the amount at stake, some buyers will do this and some will decide it is not worth the effort and expense.