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How to Pro-Rate Wake County Property Taxes at Closing: 60 Seconds in Real Estate Cary NC

Real Estate Closing and Wake County NC Property Tax Details

Wake County Property Tax Proration at Closing

It really isn't all that complicated.

Seller pays property tax through Closing, the date of deed recordation.

Buyer pays the balance for the year starting from the day after closing.

Wake County Property Tax year is the Calendar year, January 1 through December 31.  Your Closing Attorney will divide the tax bill by 365 days, and multiply the result, the property tax per day by the number of days for which each party is responsible.
And the total is the party's share.

If the tax bill has been paid already, Buyer will credit Seller at settlement for their share. 
If the tax bill has not been paid, Seller will credit Buyer for their share.

It seemed to be worthy of a quick breathless 60 Seconds in Real Estate Cary NC video blog:


10 thoughts on “How to Pro-Rate Wake County Property Taxes at Closing: 60 Seconds in Real Estate Cary NC

  1. Your guidance on proration of property taxes for settlement in Wake County is wrong since taxes are not paid in arrears but in advance in Wake County and when paid in advance the buyer credits the seller for the advance property tax payments the seller has made from the date of purchase to June 30.

    From Wake County Property tax site

    “Annual tax bills are calculated for the fiscal taxing period of July 1 through June 30. They are not based on a calendar year. (Example: A bill issued in July 2016 would cover the period of July 1, 2016, through June 30, 2017.) Property taxes not paid in full by January 5 following billing are assessed an interest charge of 2% for the month of January and an additional 3/4 of 1% each month thereafter.”

    The tax year runs July 1 to June 30 so property taxes up to June 30, 2018 was paid with the July 1, 2017 billing.

    1. Thanks for your comment, Stanley.
      It is a common misconception that the county fiscal year trumps the process followed at real estate closings.
      When closing a real estate transaction, the calendar year rules.
      June 30 closing?
      The seller covers the first half of the year. The buyer covers the 2nd half.
      September 30 closing? Likewise. Seller covers the first 9 months and buyer covers the last 3 months.
      Yes, it is a bit of a goofy offset. But, that is the practice.

  2. Two attorneys, a real estate broker, and a Wake County Dept. of Revenue Rep. told me that it doesn’t matter if the seller has already paid the property taxes for the current fiscal year, that taxes for the current calendar year will still be collected from the seller at closing and credited to the buyer for the months the seller owned the home (i.e. the seller has paid the property taxes to the county for the fiscal year July 1, 2017 – June 30, 2018. Nonetheless, at a closing on March 30, 2018, the prorated property taxes for Jan. 1 – March 30, 2018 will be debited from the sellers proceeds and credited to the buyer for the calendar year 2018 (so the seller will in essence pay twice for these 3 months). Is this correct? Thank you.

  3. That is wrong Phil and I suspect a lot of settlements occur with a wrong proration because of confusion of “Calendar Year” usage in the sales contract.
    Here is Seller Advisory issued by your NCAR and a proration quote from it.
    The calendar year reference in the contract only means it will be prorated with the seller responsible for taxes from January 1 to the date of sale and the buyer responsible for taxes from the day after the date of sale to the end of the calendar year. Credit will be given to seller for portions prepaid that is the responsibility of the buyer; and credit will be given to the buyer if the seller has not yet paid taxes on the part that he is responsible.
    “Property Taxes
    In North Carolina, when property is bought and sold, the real property taxes are prorated between the buyer and the seller according to the terms of the standard Offer to Purchase and Contract (jointly-approved by the NC Association of REALTORS and the NC Bar Association). The seller pays the taxes from January of the current year through the settlement date and the buyer pays the taxes from the settlement date through the end of the year.

    Cities and counties in North Carolina operate on a fiscal year that begins on June 1st of each year, so tax rates are established and bills are released by the tax office in the middle of the year. If, at the time of settlement, tax rates and bills haven’t been established/released, taxes are typically prorated based on the prior year’s taxes, and the buyer is given a credit for the seller’s portion of the taxes. In this case, the buyer is responsible for paying the taxes on the property for the entire year once the tax bill is released. If the tax rates and bills have been released by the tax office and have not yet been paid by the seller, taxes are prorated and paid at settlement. If the seller has already paid the taxes, taxes are prorated and the seller is given a credit for the buyer’s portion of the taxes. “

  4. So why would the seller have to “in essence pay twice”. That just does not sound right. Can you please explain further Mike? What recourse does the seller have?

    1. Kevin,
      The general opinion is that the lien is not placed on the property until January 1, so the offset in fiscal year to calendar year is ignored, and the debt is calculated on a calendar basis.
      Additionally, many attorneys believe that sellers who were once buyers benefited form this calculation method, so it is often generally a wash.
      Seller recourse? Consult with your attorney. Of course, if you toss another bill at the buyers, you may lose the deal.

      Bear in mind, all costs are known at time of contract, so the smartest path to success for the seller may be to negotiate with a focus on their net proceeds, rather than line items.

  5. We paid 2018 taxes already from 1/1/2018 through and including 6/30/2018. Settlement date will be 1/26/2018. We owe 188 days of the CURRENT tax bill due 9/1/2018 which is for 7/1/2018 through and including 6/30/2019. We will not pay more than we owe. Just because the Wake County tax billing period is not Jan 1 to Dec 31, does NOT mean lazy closing attorneys can take money from sellers who have already paid for HALF of the current calendar year property taxes. That’s some bull doo! That might fly with ignorant sellers, but not with me!

  6. It is a given fact that all 100 NC Counties tax property on a July to June Fiscal Year basis since it is required by NC Statute; however, there is also a conflicting state statute that says: “Unless otherwise provided by contract, …” property taxes shall be prorated on a Calendar Year basis for a sale. So it is up to the smart seller to modify para 9a in the NC Offer to Purchase Contract (OTP) for proration on a Fiscal Year basis (probably 1% of smart sellers modify para 9a or insist on a proper proration at closing). If more sellers catch and correct the error they might rescind the conflicting Statute and remove Calendar Year proration from the OTP. So be smart and “Provide otherwise by contract” by modifying para 9a to “Fiscal Year proration” to match the real property taxing schedule and have it initialed by you and buyer to save yourself thousands of dollars.

  7. Hi Mike,

    Thanks for this discussion. You make the proration simple and clear, although it is not the answer I want. Ruefully, I am one of the “not-smart” sellers that did not pay enough attention to the standard NC contract clause indicating that property taxes would be prorated on a calendar year basis. When I look back at our contract, sure enough, it is in there. But in reality, I probably did notice that and it would have sounded fair to prorate on a calendar year basis. I did not realize that our property taxes are actually being paid on a July 1st fiscal year basis. So in our case, because we are closing about July 31st, we are basically paying twice for January 1st through June 30th, roughly a $1400 loss.

    But I also appreciated your comment that if we have ever purchased property in NC then we were on the winning side as the buyer.

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