When you close on a Texas home, the property taxes for the year get split between you and the seller based on how many days each of you owned the property, and the title company does the math at the closing table. Texas taxes are paid in arrears, so the bill for the current year usually hasn’t arrived yet. The seller’s share of the estimated tax is credited to you at closing, and you become responsible for paying the full bill when the county sends it in the fall.1State of Texas. Texas Tax Code Chapter 32 – Tax Liens and Personal Liability
Why Texas Closings Have to Estimate
County appraisal districts set property values as of January 1, and local taxing units don’t adopt their rates until late September or early October.2State of Texas. Texas Tax Code Chapter 26 – Assessment Bills go out around October 1 and are due by January 31 of the following year.3State of Texas. Texas Tax Code Chapter 33 – Delinquency
A June closing happens six months before anyone knows the final number. Without a proration at closing, you would inherit the full year’s tax even though the seller lived in the house for half of it. The credit at closing prevents that.
How the Daily Proration Works
The standard TREC residential contract prorates taxes “through the Closing Date.” The seller owes every day from January 1 through the day of closing. You owe from the day after closing through December 31.4Texas Real Estate Commission. One to Four Family Residential Contract (Resale)
Take the estimated annual tax, divide by 365, and multiply by each side’s days. A worked example on a $7,300 annual bill with an April 30 closing:
- Daily rate: $7,300 ÷ 365 = $20.00
- Seller’s days (January 1 through April 30): 120
- Seller’s share: 120 × $20 = $2,400
- Buyer’s days: 245
- Buyer’s share: 245 × $20 = $4,900
At closing, the title company subtracts $2,400 from the seller’s proceeds and credits it to you. When the $7,300 bill lands in October, you pay it in full, but you have already been reimbursed for the seller’s portion.
What Numbers the Title Company Uses
Three pieces feed the calculation: the appraised value set by the county appraisal district,5Texas Comptroller of Public Accounts. Valuing Property the combined rates of every taxing unit that overlaps the property (school district, county, city, hospital district, MUD),6Texas Comptroller of Public Accounts. Tax Rates and Levies and the property’s exemption status.
Because closings usually happen before current-year rates are finalized, title companies default to the prior year’s tax bill as the estimate. The TREC contract acknowledges this openly and requires the parties to adjust once the real bill is available.4Texas Real Estate Commission. One to Four Family Residential Contract (Resale)
The Exemption Trap Buyers Miss
Exemptions belong to the owner, not the property. The school district homestead exemption alone removes $100,000 from taxable value. Homeowners 65 or older get another $10,000 school reduction plus a ceiling that freezes their school taxes. Disabled owners get similar treatment.
When those exemptions leave with the seller, the tax bill rises. If a 70-year-old with an over-65 exemption and a frozen ceiling sells to a 35-year-old buyer, the buyer can apply for a general homestead exemption on a primary residence but loses the age-based benefits and the ceiling. The tax jumps.
The TREC contract allows the proration to reflect exemption changes that will affect the current year’s taxes.4Texas Real Estate Commission. One to Four Family Residential Contract (Resale) Many closings still use the seller’s lower bill without that adjustment. When the tax office later removes the exemption, the county can issue a supplemental bill that sometimes reaches back several years, and it goes to the current owner. That’s you.
If the seller had exemptions you won’t qualify for, ask the title company to prorate on the taxable value without those exemptions. Fixing it after closing is expensive and adversarial.
What Happens When the Real Bill Arrives
The TREC contract includes a built-in reproration once the actual bill is issued.4Texas Real Estate Commission. One to Four Family Residential Contract (Resale) If the real tax runs higher than the estimate, the seller owes you the difference on their portion. If it runs lower, you owe the seller.
The obligation survives closing and is legally enforceable, but collecting a few hundred dollars from a seller who has moved out of state is often not worth the effort. In a year of rising values or rising rates, negotiate that gap into the closing rather than relying on a later check.
Where It Shows on the Closing Disclosure
The proration appears on the Closing Disclosure, the federal document that itemizes the transaction.7Consumer Financial Protection Bureau. Closing Disclosure Look in the adjustments section for a line under “items unpaid by seller.” The seller’s side carries a debit; your side carries a matching credit that reduces the cash you bring to closing.
Nobody pays the tax office at closing. The title company acts as a neutral third party, the seller’s share is netted out of their proceeds, and you take on responsibility for paying the full bill when it comes due.
Escrow If You’re Financing
A lender will almost certainly require an escrow account for property taxes. At closing you prepay several months of estimated taxes into it, and the lender collects one-twelfth of the estimated annual tax and insurance with each monthly payment.8Consumer Financial Protection Bureau. Is There a Limit on How Much My Mortgage Lender Can Make Me Pay Into an Escrow Account Under RESPA, the cushion the lender holds cannot exceed two months’ worth of estimated annual tax payments.9eCFR. Title 12 Chapter X Part 1024 – Real Estate Settlement Procedures Act Subpart B The lender then pays the county directly before January 31.
Texas has no state income tax, so property tax rates run higher than the national average. The effective rate on owner-occupied homes is roughly 1.36 percent, or about $4,760 a year on a $350,000 home. Confirm that the escrow figure in your loan documents reflects the actual expected bill. A lowball estimate produces an escrow shortage and a payment spike the following year.
Who Deducts the Taxes on Their Federal Return
The IRS splits the deduction the same way the closing splits the money: by days of ownership, not by who wrote the check. The seller deducts the prorated share for their days (not counting the sale date). You deduct the rest.10Internal Revenue Service. Publication 523 – Selling Your Home
On a $6,200 annual tax with a seller who owned the home 125 days, the seller’s deductible share is $2,123 and yours is $4,077. Both amounts are itemized deductions and only help if you itemize. Because Texas has no state income tax, most of a Texas homeowner’s SALT deduction is property tax, so fewer Texas filers bump into the federal SALT cap than filers in high-income-tax states. If you own multiple properties or a high-value home, check whether the cap limits what you can actually deduct.