If you own land or a home, you must typically pay tax on the value of your property. Each taxing authority determines its own rules for calculating and collecting property taxes. When you pay property taxes in arrears, you are paying the tax that accumulated on your property during the previous calendar year.
A taxing authority that bills taxes in arrears doesn't require homeowners to pay their property taxes until the year after the taxes are actually incurred. Taxing authorities typically bill property taxes at the end of year. While some taxing authorities may require homeowners to pay the entire balance early in the following year, others allow homeowners to pay in two or more installments. Penalties and interest often apply when homeowners fail to make timely payments.
When taxing authorities require you to pay taxes in arrears, the amount you pay depends on the assessed value of your home in the previous year. For example, the taxes you pay in 2013 would be based on the value of your home as determined by the taxing authority in 2012. If the assessed value of your home increases during a given year, the property taxes you owe won't increase until the following year.
Property taxes paid in arrears sometimes complicate the sale of a home. Because most closings take place partway through the year, the seller of the home may accumulate property taxes that don't become due until after the buyer has already assumed ownership. In such cases, the title company typically prorates the taxes, which involves calculating the proportions of the taxes that the seller and buyer each owe. These taxes are often due at closing.
Although your local taxing authority may bill property taxes in arrears, many homeowners pay their taxes to a lender instead of directly to the taxing authority. If you pay property taxes to your lender, you typically pay the amount in equal monthly installments along with your mortgage payments. The money is held in an escrow account on your behalf, then paid to the taxing authority. If you pay property taxes in arrears, you typically have until the end of the year to file any exemptions, such as a homestead exemption, that may lower the amount of taxes you owe.
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