Configuring Property Tax Proration Options

Overview

Property tax proration determines how the current year's tax bill is split between buyer and seller at closing. In many transactions, especially when purchasing from long-term or elderly homeowners, the seller's actual tax bill may be substantially lower than what the new buyer will pay going forward due to reassessment. Deal Details allows you to set up escrows based on the expected future tax rate while still prorating off the actual current tax bill, giving your clients an accurate picture of their closing costs.

Before You Start

Requirement	Details
Loan scenario created	Active loan with property address and purchase price entered
Current tax bill information	Seller's actual annual property tax amount from most recent bill
Estimated future tax rate	Expected tax percentage or annual amount after reassessment (typically 1% of purchase price in many states)
Closing date	Required to calculate the proration period

Step-by-Step: Setting Up Split Tax Proration

1. Access the Tax Settings

Open your loan scenario in Deal Details
Navigate to the property tax or escrow section
Locate the county/property tax fields

2. Enter the Forward-Looking Escrow Amount

This is the amount the buyer will actually pay into escrow each month going forward.

Field	What to Enter
Estimated Annual Tax	The projected tax based on new assessed value (e.g., 1% of purchase price)
Monthly Escrow	System calculates automatically based on annual estimate
Cushion Months	Typically 2-3 months collected at closing

⚠️ Important: The forward-looking escrow should reflect the buyer's expected tax burden after reassessment, not the seller's current tax bill. Using the seller's low rate here will result in escrow shortages.

3. Set the Proration Amount to Actual Tax Bill

This is the amount used to calculate the buyer's credit or debit at closing.

Setting	Purpose
Proration Source	Select "Actual Tax Bill" rather than estimated
Annual Amount for Proration	Enter the seller's current actual tax bill (e.g., $1,008.22)

4. Review the Closing Disclosure Impact

The escrow setup section will show the higher monthly amount based on future estimates
The proration section will show the lower credit/debit based on the actual bill
Verify both amounts appear correctly in your fee worksheet

Understanding the Math

Example Scenario

Item	Amount
Purchase Price	$720,000
Seller's Actual Annual Tax	$1,008.22
Buyer's Estimated Annual Tax (1%)	$7,200
Closing Date	Approximately 4 months into tax year

Forward-Looking Escrow Setup:

Monthly escrow collected: $600/month
Initial cushion (3 months): $1,800

Proration Calculation:

Seller responsible for ~4 months: ~$336
Buyer credit at closing: ~$315 (based on actual $1,008 bill)

💡 Tip: The buyer benefits from a lower proration credit when the seller has a below-market tax bill, but they need sufficient escrow reserves for when the first full tax bill arrives at the new assessed value.

Common Scenarios

Situation	Forward Escrow	Proration Source
Long-term owner with Prop 13 or similar protection	Use market rate estimate	Use actual low tax bill
New construction	Use estimated rate	Use actual (often partial year)
Recent sale with current assessment	Use actual rate	Use actual rate (same amount)
Senior exemption seller	Use market rate estimate	Use actual exempted amount

Finishing Up

1. Verify Your Fee Worksheet

Confirm the monthly escrow reflects the higher projected taxes
Confirm the proration line item reflects the actual tax bill amount
Check that the closing date is calculating the split correctly

2. Communicate with Your Client

Explain why their escrow payment is higher than the proration credit
Prepare them for the tax reassessment that will occur after purchase
Document the seller's actual tax information for their records

Quick Reference

Enter estimated future tax → Set proration to actual bill → Verify escrow cushion → Review fee worksheet → Confirm both amounts display correctly

Tips for Success

Always obtain the actual tax bill from the seller or title company before finalizing estimates, as county assessor websites may show outdated information
Explain the difference clearly to buyers who may be confused when their proration credit is much lower than their monthly escrow payment
Consider reassessment timing because in some states the new tax bill may not arrive until the following year, potentially causing a large escrow adjustment
Document your sources for both the estimated future rate and actual current bill in your loan file notes
Watch for supplemental tax bills in states like California where buyers may receive an additional bill after reassessment