What Is Prorations?
Prorations are the day-by-day splitting of costs — like property taxes, HOA dues, or rent — between a buyer and seller at closing, based on how many days each party actually owned the property during the billing period.
Prorations in plain English
Some bills cover a period that straddles the closing date - property taxes, HOA dues, sometimes rent or utilities. Prorating splits each bill so the seller pays for the days they owned the home and the buyer for the days after.
The result appears on the settlement statement as a credit to one side and a charge to the other.
Formula
Seller's Share = (Days Owned ÷ Total Days in Period) × Total Cost- Days Owned
- Days in the billing period before the closing date (for the seller).
- Total Days in Period
- Days in the full billing period, such as 365 for an annual tax bill.
- Total Cost
- The full bill for the period.
Whether the closing day itself belongs to the buyer or the seller, and whether a 360- or 365-day year is used, are set by local custom and the contract.
Example
If annual property taxes are $3,650 and the seller owned the home for the first 200 days of the tax year, the seller's prorated share is ($3,650 ÷ 365) × 200 = $2,000.
Common mistakes
- Not knowing whether taxes in your area are paid in advance or in arrears, which flips who credits whom.
- Forgetting that a buyer's tax proration credit reduces cash to close.
- Missing HOA dues or special assessments in the proration.
Prorations: frequently asked questions
How are property taxes prorated at closing?
By the number of days each party owns the home during the tax period. If the seller already paid the bill, the buyer reimburses the seller for the days after closing; if taxes are paid in arrears, the seller credits the buyer.
Who calculates prorations?
The settlement or title agent prepares them, following the contract and local custom.
Do prorations change my cash to close?
Yes. A credit from the seller lowers what you bring; a charge for taxes the seller prepaid raises it.
Related Terms
Where it fits
More Buying Terms
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No regulator defines this term; the page follows common industry practice.
Where this applies: United States. Contract terms, deadlines and customs vary by state and by contract; confirm with your agent or a real estate attorney.
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Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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