Math Walkthrough
Real Estate Tax Proration: Step-by-Step Walkthrough
Property tax proration is the most common closing-related math on the real estate exam. The mechanics are simple — daily tax × seller's days — but the trickiness comes from whether taxes are paid in arrears or advance.
Three Steps to Solve Any Tax Proration
Step 1: Identify whether taxes are paid in arrears (most common) or in advance.
Step 2: Calculate daily tax = annual amount ÷ 365 (or 360 if using banker's method).
Step 3: Multiply daily tax × seller's days = seller's prorated share. Determine if it's a debit or credit based on payment status.
Three Worked Examples
Question 1
Annual taxes paid in arrears, $4,380. Closing March 1. Seller responsible through Feb 28. Method: 365-day. What's the proration entry?
Daily: $4,380 ÷ 365 = $12. Days Jan 1 through Feb 28 = 59. Seller's share: 59 × $12 = $708. Since taxes are unpaid (arrears), seller DEBITS $708 (credits buyer).
Question 2
Annual taxes paid in advance, $6,000 paid on Jan 1 covering full calendar year. Closing June 30. Method: 365-day.
Daily: $6,000 ÷ 365 = $16.44. Seller used Jan 1 through June 30 = 181 days. Seller's used portion: $16.44 × 181 = $2,975.34. Buyer reimburses unused portion: $6,000 − $2,975.34 = $3,024.66 CREDIT to seller (debit to buyer).
Question 3
Annual taxes paid semi-annually in advance: $3,000 paid Jan 1 (covers Jan–Jun) and $3,000 paid Jul 1 (covers Jul–Dec). Closing September 1. What's the proration?
Seller used Jul 1 through Aug 31 of the second payment = 62 days out of 184 days (Jul–Dec). Seller's used: 62 ÷ 184 × $3,000 = $1,010.87. Unused: $3,000 − $1,010.87 = $1,989.13 CREDIT to seller.
Drill Tax Proration
Practice proration problems with both methods on the math page.
Related Math Pages
Tax Proration FAQ
Are most taxes paid in arrears or advance?
Most U.S. property taxes are paid in arrears (after the period). A few jurisdictions use advance payment.
Do I use 365 or 360 days?
365 is more common today. The 360-day banker's method is older. Always read the question to see which is specified.
Who's responsible for the closing day?
Varies by state and by contract. Some states make seller responsible through closing day; others make buyer responsible from closing day.