Buying a home is an exciting process, but it can get complicated quickly – especially when it comes to financial details. One area that often causes confusion in Ohio is tax proration. If it’s calculated incorrectly, it can throw off your initial disclosures and even lead to disputes or unexpected costs later in the process.
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, the annual property taxes need to be split (or prorated) between the buyer and seller based on how long each owned the home during that tax year.
In Ohio, property taxes are paid in arrears, meaning you’re paying the previous year. Because of this, the seller usually gives the buyer a credit at closing for the portion of 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 your closing date is June 1, 2024, that means the seller has lived in the home for the first five months of 2024, and you’ll 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
In Ohio, property tax proration can be calculated in two ways: long proration or short proration
Long Proration
The long proration formula is calculated from the start of the previous tax cycle up to the closing date. This means the seller covers their portion of both last year and the beginning of this year. It’s the most common method used in Central and Northeast Ohio.
Using the same example, the seller would be responsible for 336 days (July 1, 2023 – June 1, 2024):
336 days × $20/day = $6,720
Under the long proration method, the seller would credit the buyer $6,720 at closing.
Short Proration
The short proration method is most commonly used in the Toledo and Dayton markets. It is a simpler approach that assumes last year’s property taxes have already been paid. The seller only reimburses the buyer for the portion of the current tax year they owned the home — 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 Period: January 1 – June 1 (152 days)
- 152 days × $20/day = $3,040
- Buyer’s Period: June 1 – December 31 (213 days)
- 213 days × $20/day = $4,260
With short proration, the seller credits the buyer $3,040 at closing – covering their share of the year’s taxes. The buyer then pays the full bill when it’s due but, thanks to the seller’s credit, only ends up covering the portion that applies to their time in the home.
When deciding which proration method to use, you have some flexibility. It ultimately comes down to what’s agreed upon in the contract. The key is to ensure taxes are divided fairly between the buyer and seller, so the buyer isn’t caught off guard when taxes are due.
Ohio Real Title Can Help
Calculating tax proration correctly can help you avoid disputes or unexpected costs later on, so it’s important to work with a team that understands the process – like Ohio Real Title. When you work with Ohio Real Title, you can trust we understand the complexities that come with purchasing or selling a home and are here to help ensure your transaction goes smoothly from start to finish.