By Matthew A. Quick
For a more general article on real estate tax proration go here.
Property taxes in Cook County are annually paid in two equal installments and are paid in arrears, which means the taxes paid in 2011 are really for government services rendered in 2010. Since Cook County has adopted an accelerated billing method, the first installment of taxes is 55% of the previous year’s total tax amount. It is considered accelerated billing because a tax is levied on real estate without the County ascertaining the tax rates (in other words, a portion of the tax is paid before the amount of tax is calculated). Therefore, the first installment of taxes alone cannot be used to determine the entire year’s tax obligation, because the entire year’s tax obligation has not yet been calculated.
To prorate Cook County taxes for a home sale, one must look to the last ascertainable full tax year. For example, if a home was bought in May of 2011, at a time when the taxes for 2010 were being paid, then 2009 will be the last fully ascertainable tax year, because the second installment of the 2010 taxes had not yet been calculated. Once the most recent fully ascertainable tax year has been found, look to the real estate contract to see if a the taxes should be prorated at a higher amount than 100% (typically taxes are prorated between 105% and 115% of the most recent fully ascertainable tax year). Finally, determine the closing date, because this will be the last day for the seller, and the first day for the buyer, to take advantage of the government services afforded by the taxes. Now let’s prorate:
Let us assume that the closing date was set for July 15, 2011. The last fully ascertainable tax year was 2009 and the total tax for that year was, let’s say, $10,000. Additionally, we will assume the real estate contract calls for a 110% proration. NOTE: the second installment for 2010 has not yet been calculated or paid, but we know the first installment was in the amount of $5,500 ($10,000 x 55%). The calculation follows:
Second Installment for 2010 is determined by multiplying the last fully ascertainable tax year ($10,000) by the 110% proration factor (10,000 x 1.1 = 11,000). Subtract the amount already paid for 2010 (11,000 – 5,500 = 5,500). Thus, the prorated amount for the Second Installment of 2010 would be $5,500.
The days leading up to closing is determined by again multiplying the last fully ascertainable tax year ($10,000) by the 110% proration factor (10,000 x 1.1 = 11,000). Determine the amount of days from January 1, 2011, to July 15, 2011 (195 days). Reduce the amount of tax (11,000) to the amount of tax per day (11,000/365 = 30.137). Multiply the amount of days by the amount of tax per day (195 x 30.137 = 5,876.72). Thus, the prorated amount for the days spent at the property for 2011 would be $5,876.72.
The total amount of tax based upon this proration would be $11,376.72.
This tax would be sent from the seller to the buyer, because, as noted above, Cook County assesses taxes in arrears. This means, up until the point of closing, the seller has had the benefit of government services without paying for them.