While buying a home is an exciting process, it’s often a complicated one too – especially when it comes to financial details. One aspect that can add a layer of complexity in Ohio is calculating the tax proration. A miscalculation can lead to inaccuracies in initial disclosures, which could result in disputes or additional costs later in the transaction.
So, what exactly are tax prorations, and how can you ensure they’re calculated accurately?
What is tax proration in Ohio?
When a property is sold, taxes need to be prorated between the buyer and seller based on the portion of the year each party owns the property.
Since property taxes in Ohio are paid in arrears (meaning you’re paying for the previous year), the seller typically credits the buyer for the portion of the taxes that cover the time the seller owned the property.
For example…
Let’s say you’re buying a home in Ohio in 2024 that has an annual property tax bill of $7,300. Because taxes are paid in arrears, the seller is paying for the 2023 tax year. If the closing date is set for June 1, 2024, the seller has lived in the home for the first five months of 2024, and you, as the buyer, will own it for the remaining seven months.
Now, here’s where things get a little more complex. In Ohio, the property tax year is divided into two cycles:
- First Cycle: January 1 to June 30
- Second Cycle: July 1 to December 31
Ohio also uses two different formulas for calculating property tax proration:
1. Short Proration: The short proration method is straightforward and a customary practice in several counties. It assumes that the property taxes for last year have already been paid, so the seller is only responsible for reimbursing the buyer for the period they lived in the home during the current tax year. This would cover the period from the start of the current tax cycle to the closing date.
Using the example above with a closing date of June 1, 2024, the math would look like:
- Annual Tax Bill: $7,300
- Daily Tax Rate: $7,300 ÷ 365 days = $20 per day
- Seller’s Responsibility: January 1, 2024 – June 1, 2024 (152 days)
- 152 days × $20/day = $3,040
- Buyer’s Responsibility: June 1, 2024 – December 31, 2024 (213 days)
- 213 days x $20/day = $4,260
With the short proration method, the seller would credit the buyer $3,040 at closing, based on the $20/day tax rate. This amount covers the seller’s share of taxes for the period they owned the property in 2024. The buyer then becomes responsible for paying the full tax bill when it’s due, but with the credit from the seller, they’re effectively only paying for the period they own the home.
Long Proration: The long proration formula is simply calculated from the beginning of the previous cycle to the current date. This way, the seller covers their share for both last year and the beginning of this year.
Using the same example above, the seller would be responsible for paying the daily tax rate from July 1, 2023 – June 1, 2024 (336 days). At $20/day, the seller would credit the buyer $6,720 at closing.
When deciding which proration method to use, there’s flexibility—it ultimately comes down to what’s agreed upon in the contract. The key is to ensure that taxes are divided fairly between the buyer and seller, so the buyer isn’t caught off guard when taxes are due.
Closing on a new home can be a complicated process to navigate, Ohio Real Title understands these complexities and is there to help make the transaction seamless. This is who we are. Contact us today.
