How Taxes Are Paid Forward in Arrears

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Real estate property taxes are paid partially in advance and partially in arrears in most areas. While this sounds confusing, it is easy to understand when you consider the due dates and assessment dates for real estate taxes. This process is the same if your local government collects taxes annually or even monthly.

Due Dates

  • Many local areas have property taxes that are due twice per year. This arrangement allows the annual tax bill to be split in half, with each half due every six months. For example, a property owner may have an annual property tax bill of $4,000. The city may require that $2,000 be paid in September, with the other payment of $2,000 due in March.

Fiscal Year

  • The exact date that property taxes are assessed also depends on the fiscal year. Many local governments operate on a fiscal year running from July 1 to June 30. Taxes under this scenario due semi-annually would be assessed on July 1 and Jan. 1, with half of the bill assessed on each date.

Assessment Date

  • If your semi-annual tax bill is due on March 15, half of the taxes are paid in arrears, and the other half are paid in advance. The six-month period for the taxes starts in January and ends June 30. Half of the semi-anual payment is applied to the taxes assessed from Jan. 1 through March 15 and would be paid in arrears. The other half of the semi-annual payment applied from March 16 through June 30 would be paid in advance. The same would apply to the second semi-annual payment.

Considerations at Sale

  • The arrears and advance payment of taxes applies mostly in the sale of a property. In many areas, it is customary that property taxes be adjusted at the closing of the sale on the real estate settlement form. Taxes paid in arrears would be the seller's responsibility and would be charged to the seller and credited to the buyer on the form. Any taxes that the seller had paid in advance would be the buyer's responsibility, and would be charged to the buyer and credited to the seller. The type and amount of these adjustments depends on the exact date of the closing.

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