By Matthew A. Quick For an article more specific to Cook County tax proration go here.
Real estate tax proration is an issue that is normally addressed when transferring real property. Tax proration involves calculating the amount of tax owed on real estate for the time the real estate was owned.
In general, property taxes are for payment of government services. Property taxes are either paid in advance or in arrears and can be subject to different due dates. When property taxes are paid in advance that means government services are being purchased before they are used. An example is when taxes are paid on the first date of a fiscal year for the entire year. When property taxes are paid in arrears, government services have already been expended and the property taxes are intended to reimburse the government. An example is when taxes are paid on the last date of a fiscal year for the preceding year.
If the transfer of a home, thus the transfer of government services, occurs in the middle of a fiscal year, the transferor (the seller) only utilized the government services until the point of transfer and the transferee (the buyer) only utilizes the government services after the point of transfer. Fairness dictates that the transferor and the transferee only pay for government services while owning the property.
Prorating the proper amount of tax involves figuring whether the tax to be prorated is paid in advance or in arrears, then figure the start of the fiscal period. Count the number of days from the start of the fiscal period to the date of transfer (the closing date). Multiply the daily tax rate by the number of days. If the property tax was paid in advance, then the amount yielded is paid to the transferor. If the property tax is to be paid in arrears, then the amount yielded is paid to the transferee.