Tax Adjustment Question

[homebuyinstinks]

What is the name of your state? Connecticut

I just found out today 3 days before I am to close on a home that I have to reimburse the sellers of the home for taxes that they paid for in advance. (They paid a year in advance) Should this be something that I have to pay or something that whomever they paid them to should have to reimburse them for?

 

[Gadfly]

Are you sure? It would be highly unusual for someone to do this since there is no financial advantage to it.

 

[homebuyinstinks]

Yes, We were told today by the lawyers that we have to reimburse the sellers almost 1800 for 7 months worth of taxes that they paid in advance on the home. We just aren't sure if we should be responsible for this or not.

 

[PghREA]

What is the name of your state? Connecticut

I just found out today 3 days before I am to close on a home that I have to reimburse the sellers of the home for taxes that they paid for in advance. (They paid a year in advance) Should this be something that I have to pay or something that whomever they paid them to should have to reimburse them for?

It is called "proration of taxes." Real estate taxes are paid in advance and are billed once a year. The sellers have already paid the taxes on their home for the year. They are only responsible for the taxes up to the day of closing. You are responsible for the taxes from the day you close until the end of the year (or taxing period if the taxes are collected on a fiscal year). So you will only be paying taxes for the portion of time that you actually own the home. This is a normal part of the closing costs. Everyone who purchases a house in the US reimburses the seller for the prepaid taxes.

This should be explained in your sales agreement, and your Realtor and mortgage rep. should have also explained it to you also.

Most likely, the taxes in the future will be paid from your escrow account.

 

[efflandt]

Go to your county (or municipality or whoever collects property taxes), find out what property tax has been paid, and what tax year it was for (not necessarily when due, but the tax year). From a quick web search, I am not even sure who collects property taxes in your state without a more specific location (county or city).

In most cases property tax is either due the end of the tax year or in many cases, the following year. For example for property I own in WI, 1st installment of 2006 tax will be due Jan 31, 2007 (the other half in July 2007), but I have not even received the bill yet. For my home in IL, I will not even get my 2006 property tax bill until May 2007 (due June 1 and Sept 1, 2007 installments).

Does your community bill and collect property taxes for tax year 2007 before that year even started? If so, then you would be liable for any 2006 tax year after closing and anything prepaid for tax year 2007. But if they just paid half of 2006 tax, due in 2007, then you would be due a credit from the seller for the rest of 2006 tax through closing (4+ months) due next year. So make sure you are clear about what tax year has been paid for, not necessarily what year it is due.

Note that what the seller paid to tax escrow does not count (since they will get any extra money back from that), only tax that was actually paid from escrow, or paid by them.

 

[ShanahBanana]

efflandt is correct.
When we have closed before (in the mth of Oct) we were responsible for paying the prorated amount for the rest of the year- the sellers gave us a "credit" at closing for the other months of THAT year because it was due end of Jan the previous year. Paying it a year ahead sounds like escrow and no, you shouldn't have to reimburse them that- they should get it back.

We're closing soon on a new house (next week) and we are paying the prorated amount of taxes for the rest of the year- the sellers are paying the rest since the bill is essentially due like "now". Otherwise we would just get a "credit" of the rest of this 2006 year at closing and we'd have to come up with the money to pay the bill in Jan ourselves. Either way will work- but it's odd that they paid a year ahead and now need you to reimburse them for that. You should only pay for the months you will owe the tax- and if they prepaid it by escrow on their mortgage for months you will own the home, they should get that refunded to them from their escrow company. I'm pretty sure that's right. If their escrow paid it way in advance like that- not only is that unlikely and kinda silly... but if you pay them back for it you're paid up well in advance for the next year I guess. That's not cool to find out last minute like that though.

On my GFE I only have to pay 1yr ahead in insurance plus 3mo (1mth this year, 1yr ahead, then 2 mo "cushion" amount ahead of time), and 3 mths (1 mth of this year, 2mth cushion) for the property tax escrow - I do not have to pay a year ahead of time on the property taxes, and they shouldn't have had to either. Weird.

(ps. paying taxes ahead of time in escrow with mortgage pymt is normal, actually paying the taxes to the city ahead of time is not normal- how would they even know what the city might re-assess the value of the home? what about if rates change that next year as they often do? They just paid ahead, "based on" the amount owed the previous year- so they guessed at how much would be due the next year but without actually having to do that in escrow? that's odd)

 

[homebuyinstinks]

Their taxes and mine apparently were not escrowed. They are for whatever reason not escrowing our taxes either and the taxes for 2007 are due in January and July of each year. The sellers of the home have apparently paid the taxes up until June 30th of 2007. I have found out through some research that it is our responsibility to reimburse them for the taxes that they have paid, which is fine. They should have made someone aware BEFORE yesterday that they had already paid the taxes a year in advance instead of throwing it at us 3 days before we are closing on the home.

 

[ShanahBanana]

Okay first off- you keep saying they paid a year in advance and you have to pay them back for that- it's not a year.. it's only thru June (half a year).

Taxes due in Jan can't possible be for that year. Unless some states/cities are completely different- how can they have them pay in Jan for half the FUTURE year when they don't know if there will be tax rate changes, assessment changes, etc? Here we pay after the fact- but even if we didn't pay yearly we would pay like in June for the previous 6mo, end of year for the previous 6mo- not in advance. That's so foreign to me and seems like doing it that way would only lead to "differences owed" if tax rates changed after they paid in advance.
Likely the pymt in Jan is due for last half of 2006, payment in June is for previous 6mo in 2007 or something of that nature. Find out for sure that they are REALLY paid in advance- otherwise you could be paying them back for taxes they paid for months you didn't own the property.

If it truly is some system where you live where you pay bills in advance- and they paid thru months you'd own the home... ofcourse you're going to have to pay for that. But I agree finding out last minute like that is uncool. I can't really comprehend a tax system where you are billed for property taxes IN ADVANCE though. Maybe where you 'could' pay in advance but actually billing in advance like you stated in your last post is very weird. Here you get a bill after the fact- towards the end of the year being taxed and deadline is end of Jan the following year (can be paid at any time the bill is received mid-Oct though). How they can bill in advance is weird to me though because here tax rates can change, they can do appraisals and change the property value therefore changing the tax amount due, etc. and how they could do that in advance a year is something I don't understand. How is the county appraiser going to know it might be appraised higher or lower value in the future? How are they going to know if we vote to change tax rates/etc. in the future? Very weird.

 

[homebuyinstinks]

Okay first off- you keep saying they paid a year in advance and you have to pay them back for that- it's not a year.. it's only thru June (half a year).

Taxes due in Jan can't possible be for that year. Unless some states/cities are completely different- how can they have them pay in Jan for half the FUTURE year when they don't know if there will be tax rate changes, assessment changes, etc? Here we pay after the fact- but even if we didn't pay yearly we would pay like in June for the previous 6mo, end of year for the previous 6mo- not in advance. That's so foreign to me and seems like doing it that way would only lead to "differences owed" if tax rates changed after they paid in advance.
Likely the pymt in Jan is due for last half of 2006, payment in June is for previous 6mo in 2007 or something of that nature. Find out for sure that they are REALLY paid in advance- otherwise you could be paying them back for taxes they paid for months you didn't own the property.

If it truly is some system where you live where you pay bills in advance- and they paid thru months you'd own the home... ofcourse you're going to have to pay for that. But I agree finding out last minute like that is uncool. I can't really comprehend a tax system where you are billed for property taxes IN ADVANCE though. Maybe where you 'could' pay in advance but actually billing in advance like you stated in your last post is very weird. Here you get a bill after the fact- towards the end of the year being taxed and deadline is end of Jan the following year (can be paid at any time the bill is received mid-Oct though). How they can bill in advance is weird to me though because here tax rates can change, they can do appraisals and change the property value therefore changing the tax amount due, etc. and how they could do that in advance a year is something I don't understand. How is the county appraiser going to know it might be appraised higher or lower value in the future? How are they going to know if we vote to change tax rates/etc. in the future? Very weird.

See, what you are saying makes complete sense to me. Why would they allow you to pay in advance when you don't know if the property value will go up or down. I talked to the Mortgage Lender and my lawyer about it and unfortunately. Taxes in Jan are for Jan through June and taxes in July are July through Dec. They paid from June of 06 right through to June of 07. Doesn't make sense to me why someone would do that, especially if they were selling a home. I will be sure tomorrow at closing to make sure they have PROOF that they paid them that far in advance. I appreciate your help though

 

[HUD-1]

Yes, you are on the right track. In CT, you pay taxes 6 months in advance. The July 1, 2006 and the January 1, 2007 payments will be for the same amount. All else being equal, neither the mill rate nor the assessment can change again until the 7/1/2007 payment is due. It does beg the question as to why someone would pay the Jan 2007 bill before it was due. Have your attorney make sure that it was in fact paid and that your first tax payment will not be due until 7/1/2007.

 

[homebuyinstinks]

Thank you all so much for the input. We did close on the house today and found out that yes, they did pay the taxes in advance. For whatever reason something was passed in Oct of 2005 that put people on a list and apparently their tax rates don't change for as long as they own the property which is how she knew how much taxes to pay. I appreciate all the help. Everything is said and done now and at least I don't have to pay taxes again until July of 07!!