Understanding Property Tax Proration at Closing in New Jersey
In New Jersey, property taxes are typically collected at closing for a period of up to six months. This practice ensures that both the seller and the buyer are fairly responsible for the property taxes due on the date of the transaction.
How Property Taxes Are Handled in New Jersey
Property taxes in New Jersey are billed quarterly, which means the seller is often required to prepay the taxes for the period up to the closing date. The exact amount of taxes prorated at closing can vary based on the timing of the closing and the local municipality’s tax billing schedule. It is crucial for buyers and sellers to review the closing statement to understand the specifics related to property taxes.
Proration of Property Taxes
Real estate taxes are divided precisely to the day. The seller is responsible for property taxes from January 1 through the date of closing, while the buyer is responsible for the balance of the year. This proration system ensures that the seller pays for the taxes they are responsible for, and the buyer pays for the balance of the year starting from the closing date.
If the seller has already paid the taxes, the buyer will need to reimburse the seller for the portion of the tax that covers the days after the sale. This transaction is handled by the closing attorney or title officer who will make all the necessary calculations and provide both parties with a closing statement. If you are obtaining a mortgage to buy the property, the lender will likely require an escrow or impound account to be established, and they will pay your taxes for you out of this fund.
Most of my clients need to deposit an amount equal to roughly 2-6 months worth of property taxes. This amount can vary depending on when the closing occurs, rather than the date in which the tax payments are due. In Georgia, taxes are paid once per year. However, in New Jersey, taxes are billed annually but paid quarterly, meaning most lenders would want to collect about 3 months worth of taxes and insurance premiums to start the escrow fund.
You can check with a local lender to get a more precise answer, but generally, prorated taxes ensure a fair transition of tax responsibilities between the seller and the buyer at the time of closing.
Tips for Managing Property Taxes at Closing
Before closing on a property in New Jersey, ensure that you:
Understand the proration process and review the closing statement carefully. Communicate with the seller about any outstanding or prepaid taxes to ensure accurate prorations. If you are taking out a mortgage, work with your lender to establish an escrow account to cover your ongoing tax obligations. Keep in mind the quarterly tax billing schedule and make sure that any necessary payments are accounted for in the escrow process.By following these steps, you can ensure a smooth property tax proration process and avoid any misunderstandings or financial surprises at closing.
Remember, the key to successful property tax management is clear communication and understanding of local tax laws and billing practices. Proper planning and preparation can help simplify the process and ensure a seamless transition.