How much can sellers expect the real estate tax payment to be when they close on their home in Iowa City? This is one of the top questions I get asked by sellers listing their homes in and around Iowa City.
Explaining real estate taxes “in person” is complicated enough. You might well get information overload reading this. For those sellers who are happy with a “ball park” amount, a safe amount is to figure paying the buyer a full year’s real estate taxes at closing.
If you’re a seller looking for a more detailed explanation on how real estate taxes are calculated at closing, the example below for an August closing ends up with a real estate tax payment for 13 1/2 months. A September closing may be less, depending on when the 1st tax payment is made. Very often closing departments don’t rely on lenders to make the 1st tax payment till the end of September, so in the real world it’s more likely an October closing would make a difference to the pro-rated amount for closing. The exact amount will always vary depending on the date of closing, that’s why a full year is a good starting point.
How to Calculate Real Estate Taxes for an August 15 Closing
Tax statements are sent out to home owners in Johnson County at the end of the tax year, mine arrives at the beginning of August. The first half is due on September 1 every year and the second half on March 1 of the following year. In the state of Iowa we pay taxes one year in arrears. To complicate the matter, the tax year starts on July 1 and ends on June 30.
What would the real estate tax payment be for a closing on August 15? This is a date close to when homeowners get their tax statements for the previous year and is on the upper end of what sellers can expect to pay at closing. In this example the seller would need to pay a full year’s taxes to the buyers to cover up to June 30. That would cover the amount due in the tax statement sent out at the beginning of August. It would not cover the time between June 30 – August 15. (That won’t be due until the following year). As sellers need to pay buyers real estate taxes right up to the day of closing, the amount from July to August 15 will be pro-rated by the closing department preparing the closing cost statement. In this example, the sellers would pay a total of 13 1/2 months of real estate taxes to the buyer at closing. (The closing department will calculate days not months).
A closing in September might look different, since the lender may have paid the first payment due on the tax statement from the escrow account, (due on September 1). That would translate into sellers paying less to the buyers for a September closing.
It’s important to note that the funds in the escrow account cannot be used at closing. Real estate taxes will be paid from proceeds in the sale of the home. Any escrow funds will be returned to sellers by lenders after closing. The refund of escrow funds occurs approximately 30 days after closing and will vary from lender to lender.
Are you looking for the right Realtor to help you navigate the complexities of the real estate market, all the while looking out for you and your money? Sound advice and guidance is just a phone call, text or email away. Call Denise now at 319-400-0268.
Disclaimer: This post is a bit on the technical side and it’s important when you read this to verify the information in it with a tax professional and not to use it as a basis for financial decisions.