Understanding Property Taxes

property taxes in ohioPaying your Ohio property taxes at closing is one of the most confusing costs for sellers.

The State of Ohio handles property tax payments in a unique (and universally confusing way).  Property taxes are paid in arrears.  Arrears means the most recent tax bill you received in June or July (each county is different) covered property taxes owed from July 1, 2017, through December 31, 2017.  So we’re really paying our property taxes after the fact- or in arrears.

Most homeowners rarely see a tax bill because your lender is holding your payment in an escrow fund as part of your monthly mortgage payments.  

Each time the Ohio property tax bill is paid, the lender or mortgage servicing company figures out if your current payments are adequate to pay the next bill.  If not your monthly payment is adjusted. (questions -check with mortgage servicing company)

Why so many questions about property taxes?

Most of the confusion happens when you go to close the home you sold.  The first issue may be the timing.  You or your lender has paid the current tax bill right around the closing date but the county records don’t reflect any payments. The title company will work with you and do some research and try to resolve the payment status prior to closing.  Most county offices are great about tracking down payments

The second issue pops up because we pay our taxes in arrears.  You are scheduled to close on July 22nd and the latest tax bill has been paid.  However, the closing documents state you actually owe property taxes- deducting the amount from the seller and showing as a credit to the buyer.

Remember that you haven’t paid your property taxes for 2018 yet.  And since the next tax bill will be sent to the new owner- the amount you owe is prorated and transferred at closing.

Let’s assume your property taxes are $2,000 a year ($1,000 every 6 months).  The last tax bill you paid covered July 1, 2017- December 31, 2017.  As the current owner, you still owe taxes due from January 1, 2018, until closing.   And in this case, a $1,117 property tax payment shows up in the Closing Disclosure.   To keep it simple assume the seller owes $1,000 for property taxes from January 1, 2018, through June 30, 2018.  But since the closing is on July 22nd, the title company will prorate taxes for 21 days equally $117.  

So when you walk out of the closing future Ohio property tax bills for that property belong to the new owner.

As long as sellers remember that Ohio property taxes are paid in arrears the extra tax expenses are easier to understand.