Tax Prorations

Each year the County Appraisal District (CAD) assigns each property an appraised value for real property tax purposes.  This appraised value is typically issued in March or April, and the property owner is given a period of time in which to protest the appraised value.  Each jurisdiction (County, City, School District, MUD, etc.) that has taxing authority over a property determines the tax rate for that jurisdiction.  The tax owed for each property is calculated by multiplying the tax rates by the appraised value, subject to any applicable exemptions that may apply to the property or owner.  Tax bills in Texas are issued at the end of the tax year, so the 2017 tax bill will be issued after October 1, 2017 and be due by January 31, 2018.

Taxing jurisdictions will not accept payment of taxes if a bill has not yet been issued.  When a property is sold mid-year, in order to minimize any post-closing issues in the proper division of the annual tax bill, your title company will prorate the taxes as of the closing date and credit the party who will actually, or has already, paid the bill while debiting the other party.  If no tax bill has been issued for the current year, the proration done at closing is an estimate.  Most contracts provide that either party may require the other to correct the prorations based on the actual bill when received.

In situations where there is new construction on a property, or renovation of existing improvements, and the CAD has not yet proposed an appraised value for the current year, calculation of the tax amount can be particularly difficult.  The appraised value issued by the CAD is supposed to reflect the appraised value as of January 1 of the current year.  For properties under construction, the state of the improvements as of January 1 may be difficult to determine.  This often requires the that the title company rely on the parties to provide an estimate of the value as of January 1, with the understanding that the parties will adjust the prorations based on the actual bill when received.  Buyers in this situations should also be aware that the tax appraisal, and bill, for the subsequent year may increase dramatically.

If you would like to use a knowledgeable title company conveniently located in the Heights, please give us a call.

Fidelity National Title, 1512 Heights Blvd., Houston, TX 77008 (713) 529-8800.