property tax proration

Tax, SDIRAs & Cost Segregation
8yFollow

property tax proration

Jeremy H.
Pleasanton, CA · Member since 2015 · 66 posts · 9 votes

I noticed the title companies (the ones here I have dealt with anyway) take the number of days the seller occupies and credit the buyer in prorated property tax,

To figure the amount per day they take a 1/2 year amount (typically in the county tax bill for 1 installment),   divide by 180 and then multiply by seller occupied days.

My question is, shouldn't the division be by 182.5 days, or 183 days in a leap year?   The seller is guaranteed over compensates the buyer by about 1% for this  (182.5/180.0).

Before I get too far,

I am trying to claim my property tax deduction (as a buyer) and I would subtract what the title company says the seller has credited me, but I question the accuracy of using 180 days.

As a seller, I also would claim that number for prorated property tax I credited the buyer by what the title company says in the final HUD.. (not likely the one on signing day but the one where they figured the errors and refunded)

thanks

0Reply
37 views

Most Popular Reply

Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
8y
Originally posted by @Jeremy H.:

I noticed the title companies (the ones here I have dealt with anyway) take the number of days the seller occupies and credit the buyer in prorated property tax,

To figure the amount per day they take a 1/2 year amount (typically in the county tax bill for 1 installment),   divide by 180 and then multiply by seller occupied days.

My question is, shouldn't the division be by 182.5 days, or 183 days in a leap year?   The seller is guaranteed over compensates the buyer by about 1% for this  (182.5/180.0).

Before I get too far,

I am trying to claim my property tax deduction (as a buyer) and I would subtract what the title company says the seller has credited me, but I question the accuracy of using 180 days.

As a seller, I also would claim that number for prorated property tax I credited the buyer by what the title company says in the final HUD.. (not likely the one on signing day but the one where they figured the errors and refunded)

thanks

Bay Area tech nerds might appreciate this. Urban legend, who knows how true, but here goes...

 Financial institutions use 360 day years as a hold-over from mechanical calculating devices. 

12 months a year times 30 year mortgage = 360 payments

360 day year divided by 12 months a year = 30 day months

And so on. For a mechanical calculating device, or perhaps even a budget/entry-level early vacuum tube computer, you would hard code the relationship between 12, 30, and 360 and force everything to fit into the 12/30/360 paradigm. The mechanical calculator might ONLY be able to do this, and the early computer might be 10x as fast doing it this way. So all months are 30 days, half years are 180 days, mortgages are 360 months (30YF) or 180 months (15YF), years are 360 days long, P&I payment in a month is the same if it's a 28 day or 31 day month, etc etc. 

Diving by 2 to get a 180 day half-year, or 180 month payment term, is easier than making a cost effective 19th century mechanical calculator deal with 182.5 days in a half-year.

Half the time you are buying, half the time you are selling, so irregularities like what you highlighted will average out in the end.

1Reply
See this reply in the discussion

4 Replies

Jump to latestLatest
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    8y
    Originally posted by @Jeremy H.:

    I noticed the title companies (the ones here I have dealt with anyway) take the number of days the seller occupies and credit the buyer in prorated property tax,

    To figure the amount per day they take a 1/2 year amount (typically in the county tax bill for 1 installment),   divide by 180 and then multiply by seller occupied days.

    My question is, shouldn't the division be by 182.5 days, or 183 days in a leap year?   The seller is guaranteed over compensates the buyer by about 1% for this  (182.5/180.0).

    Before I get too far,

    I am trying to claim my property tax deduction (as a buyer) and I would subtract what the title company says the seller has credited me, but I question the accuracy of using 180 days.

    As a seller, I also would claim that number for prorated property tax I credited the buyer by what the title company says in the final HUD.. (not likely the one on signing day but the one where they figured the errors and refunded)

    thanks

    Bay Area tech nerds might appreciate this. Urban legend, who knows how true, but here goes...

     Financial institutions use 360 day years as a hold-over from mechanical calculating devices. 

    12 months a year times 30 year mortgage = 360 payments

    360 day year divided by 12 months a year = 30 day months

    And so on. For a mechanical calculating device, or perhaps even a budget/entry-level early vacuum tube computer, you would hard code the relationship between 12, 30, and 360 and force everything to fit into the 12/30/360 paradigm. The mechanical calculator might ONLY be able to do this, and the early computer might be 10x as fast doing it this way. So all months are 30 days, half years are 180 days, mortgages are 360 months (30YF) or 180 months (15YF), years are 360 days long, P&I payment in a month is the same if it's a 28 day or 31 day month, etc etc. 

    Diving by 2 to get a 180 day half-year, or 180 month payment term, is easier than making a cost effective 19th century mechanical calculator deal with 182.5 days in a half-year.

    Half the time you are buying, half the time you are selling, so irregularities like what you highlighted will average out in the end.

    1Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    8y

    @Jeremy H.

    Even with CA prices, the difference is relatively minor. There's a far bigger factor that makes proration inherently flawed: the assessment is usually in arrears. So the seller is charged based on a projected tax bill, not the real bill. The buyer ends up paying the difference for the entire year.

    Worse, if the buyer is an investor, and the seller is a homeowner with exemption...

    @Chris Mason made a good point that it sorta evens out with enough transactions.

    Now, to my pet peeve. Closing statements are choke-full of major errors, all the time. What you pointed out is very minor in comparison.

    1Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    8y
    Originally posted by @Michael Plaks:

    @Jeremy H.

    @Chris Mason made a good point that it sorta evens out with enough transactions.

    Now, to my pet peeve. Closing statements are choke-full of major errors, all the time. What you pointed out is very minor in comparison.

     The way an escrow officer explained it to me is that it's 20x easier to mail someone a refund check for $2,000 than it is to hit someone up after closing for $17.

    1Reply
  • Jeremy H.
    OP
    Pleasanton, CA · Member since 2015 · 66 posts · 9 votes
    8y
    Originally posted by @Chris Mason:
    Originally posted by @Michael Plaks:

    @Jeremy H.

    @Chris Mason made a good point that it sorta evens out with enough transactions.

    Now, to my pet peeve. Closing statements are choke-full of major errors, all the time. What you pointed out is very minor in comparison.

     The way an escrow officer explained it to me is that it's 20x easier to mail someone a refund check for $2,000 than it is to hit someone up after closing for $17.

    Makes sense!  thanks for the replies.   I know as long as I have the title company documents to back up my numbers I would be fine.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free