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How taxes divided up at closing

May 17, 2019
By ERIC FEICHTHALER - Real Estate Law , Cape Coral Daily Breeze

Dear Mr. Feichthaler:

We are planning to sell our home in a few months, and have heard different stories on how property taxes are dealt with. Some people we know think the seller has to pay the entire year of taxes at closing while others say the amounts are divided up based on some formula. How do we know if this is being done correctly?

- Crystal M.

Dear Crystal,

The standard real estate contract addresses how taxes are divided up, or prorated at closing. Generally, as of the date of closing, the previous year's tax bill is utilized to estimate the taxes for the following year. Taxes billed in November are collected for that calendar year. That is, in Florida, our property taxes are collected in arrears. So, if the closing is scheduled for June 1, the seller would give a credit to the buyer for the time they held the property, from Jan. 1 through June 1. Then, the buyer would pay the full amount of taxes for 2019 when the bill arrives.

However, in Cape Coral, there is a twist. There are certain charges that are paid in advance. These charges include the fire assessment, garbage collection and stormwater fees. Not only are they collected in advance, but they are collected for the city's fiscal year from Oct. 1 through Sept. 30. For the June 1 closing, the buyer would provide the seller a credit for the time the buyer will benefit from the prepayment (from June 1 through Sept. 30).

The law firm or title company closing your transaction should provide detail on how these taxes are divided on the settlement statement. I have seen some title companies simply lump the charges together and divide them based on the calendar year. If they do that, they will cost the seller more money.

As a footnote, some contracts allow for a re-calculation of the taxes when the new bill is released, requiring one party to compensate the other if the estimate of taxes and assessments were not accurate. As with most contractual terms, how unexpected changes to taxes are handled can be negotiated.

Eric P. Feichthaler has lived in Cape Coral for over 30 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Historical Museum, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 18 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator.

Mr. Feichthaler can be reached at eric@capecoralattorney.com, or (239) 542-4733.

This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.

 
 
 

 

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