“Nothing can be said to be certain, except death and taxes.” This all-too-true phrase we all have heard rings true as many homeowners submit payments for the current year’s property taxes. Property taxes are an integral part of homeownership, and as such, it often becomes the subject of conversation at the closing table. Florida’s tax bills can be confusing – to understand what gets charged and the periods they cover. The confusion exacerbates when taxes get prorated at closing. Depending on the time of year, buyers and sellers may exchange a credit; at other times, only one party may receive a credit. It is vital to understand the intricacies of prorations of Florida property taxes to serve your customers better!
The Bill:
Each year in October, Florida residents have their property tax bill to look forward to. The bill contains the total amount due and two categories of charges. These categories include taxes and assessments covering different periods, yet are collected simultaneously. Ad valorem taxes are based on the property value itself and get charged in arrears on a calendar year cycle. Non-ad valorem charges featured on the bill are not taxes but assessments set by the appropriate authority. Unlike ad valorem taxes, these charges are paid in advance and cover the fiscal year.
Prorations:
Section 18(K) of the Contract gives a complete list of all items to be prorated on the Closing Date. “Taxes shall be prorated based on current year’s tax. . . If current year’s assessment is not available, then taxes will be prorated based on prior year’s tax.” Closing agents will routinely rely on prior year’s tax when calculating prorations. Therefore, the number of credits exchanged will depend entirely on when closing occurs.
Adjustments:
Every October, Florida residents begin to receive their annual property tax bill. For new residents, the total amount can often cause sticker shock! Given that the vast majority of transactions occur during a time of year when the prior year’s tax bill is utilized for prorations, it is not uncommon for adjustments to be requested when the final bill is delivered. In section 18(K), the Contract states, “a tax proration based on an estimate shall, at either party’s request, be readjusted upon receipt of the current year’s tax bill.” This provision allows parties to re-prorate the taxes should a drastic increase in the total amount. When a buyer or seller believes they are due more as a result of an increase in property taxes, it is recommended that they contact the other party equipped with the figure they are now due, a copy of the contract, and both tax bills. It is important to note that while rights and obligations under the Contract terminate at closing, section 18(K) explicitly states that the rights associated prorations and subsequent adjustments shall survive Closing.
As you can see, property taxes have the potential to bring with them many questions not only during the transaction but months after Closing. If you have any questions about this topic, please contact your local trusted real estate attorney.
