When land is transfered from one owner to another, when do you have to start paying land taxes on it?

Question

The land is in Alabama, if it matters.

Answer 1

The day you become responsible for property taxes is the first day you own the land.

Commonly, you will end up paying more than this. Real estate sales sometimes include all taxes accrued to date, and they may not make a special transaction to pay a partial tax. If you pay more than you owe, the taxes become deductible on your 1040 as well as increasing your cost basis.

Answer 2

At the time of the closing (or escrow, if that is your local parlance) an adjustment is made to ensure that the buyer and the seller have paid the real estate taxes up until the time that the next tax bill is due.

So, if the taxes are due quarterly, and the closing was on December 29th, then the buyer paid the seller for the three days of taxes until the end of the quarter, and the seller paid the taxes until the end of the quarter, or, if the taxes were not paid by the seller, then the seller credited the buyer for the unpaid taxes, and the buyer pays the tax bill for the quarter.

The buyer will pay the next tax bill - quarterly or annually, unless the bank is escrowing money to pay the taxes, in which case, the taxes will be paid by the bank.

In the event there was no adjustment for partial periods, the seller is responsible for the portion of the taxes until the date of sale, the buyer for the portion thereafter, however, INSIST that the adjustment is made at closing to avoid any issues with the state and local taxing authorities. If the seller does not pay their taxes at or before closing, you could end up being liable for the seller's portion of the tax!

Contrary to the answer above, ALL real estate taxes are deductible on your Federal Income Taxes, IF you Itemize Deductions. The deduction is taken on Schedule A, not on your Form 1040.

Answer 3

Usually part of the closing is pro-rating what's already been paid if it's paid for time after the closing. The new owner pays the previous owner back for that part, then pays future bills.

If taxes are overdue when the closing takes place, then the old owner would pay the new owner for the overdue part, again pro-rated for the time when each owns the property.

Answer 4

If a closing was done, then the responsibility for property taxes change on the closing date. The closing statement should account for any prepaid property taxes, or any unpaid property taxes and allocate it to the buyer and seller accordingly.