How are prorated taxes shown on the settlement statement?

Prorated taxes are shown on the settlement statement as a credit to the buyer and a debit to the seller. This reflects the allocation of property taxes for the period during which the seller owned the property as well as the period that the buyer will own it.

In real estate transactions, taxes are often assessed on an annual basis and paid in arrears. When closing a deal, if the closing occurs before the tax payment is due, the seller is responsible for the taxes incurred up until the closing date. Therefore, the seller will be debited for the amount of taxes they owe until that point.

Conversely, since the buyer will own the property moving forward, they receive a credit for the portion of taxes that they will pay after the closing date. This ensures that the financial responsibility for tax payments aligns with the period of ownership, maintaining fairness in the transaction. Through this process, the settlement statement accurately reflects the distribution of tax liability between the buyer and the seller.