When buying or selling real estate, it is common to prorate real estate taxes. Ultimately, the purpose of the tax proration is to achieve a fair balance of the interests of purchasers and sellers in transactions.
Many counties in the region, including Cook County, collect property taxes. These taxes are then distributed to municipalities, park districts, schools, and other public services.
In Cook County, property taxes are billed twice a year, with an expected due date of March 1 for the first installment, and August 1 for the second installment. Just like income taxes, property taxes run a year in arrears, so the taxes that accrued in 2017 are paid in 2018.
In the first year after closing, the owner (who recently completed the purchase) will receive a tax bill for a period of time when the Seller owned the property. The tax proration is a way for the Seller to credit the Purchaser for the amount of taxes expected to be billed. The Purchaser is responsible for paying the tax bill when it comes due, but the Seller provides funds at closing with which to do so.
For Sellers, it is a way to account for obligations that arose during their period of ownership.
A traditional formula for calculating the tax proration is to take the product of (a) the amount of the last full-year tax bill, (b) the portion of the year(s) in which Seller was in possession of the property for which taxes are unpaid or yet to be billed, and (c) sometimes, a multiplier that accounts for possible tax increases.
This will result in the amount that the Seller should credit to the Purchaser at closing, which will appear on the settlement statements and closing disclosures.