Prorations

Prorations and Closing Math ## Why Prorations Are Necessary In Texas, property taxes are assessed and paid in arrears — the 2025 tax bill is paid in 2025, but it is not finalized and sent until fall, with a January 31 deadline. At closing, neither the exact tax bill nor the exact closing date amount are perfectly predictable, so the parties use prior-year taxes as an estimate and prorate them based on days of ownership. The proration principle: The seller is responsible for taxes (and other periodic costs) for every day they owned the property in the current year. The buyer is responsible from the closing day forward. The proration credit appears on the closing disclosure as a debit to the seller and a credit to the buyer. ## Standard Tax Proration Formula Step 1: Calculate the daily tax rate = Annual taxes ÷ 365 Step 2: Count the seller's days of ownership (January 1 through the day before closing, or through the day of closing depending on contract terms — typically the day before) Step 3: Seller's proration = Daily rate × Seller's days Step 4: Entry on closing disclosure = Debit to seller, Credit to buyer > Worked Example: > Annual taxes (estimated): $7,300 > Closing date: September 15 > Seller's days (Jan 1 through Sept 14): 257 days > Daily rate: $7,300 ÷ 365 = $20.00/day > Seller's debit: 257 × $20.00 = $5,140 > The buyer will pay the full tax bill in the fall (~$7,300). The seller's $5,140 credit to the buyer at closing reimburses the buyer for the seller's portion. ## HOA Dues Proration HOA dues paid in advance (common for annual or…