Understanding the Problem
You’re selling North Carolina real estate with a co-owner, and a small prorated property tax amount will be deducted from the sale proceeds. The question is how that amount should be allocated between the buyer, you, and your co-owner. In other words, who pays the tax share for the year up to the closing date, and how is the seller-side amount split?
Apply the Law
Key Requirements
- Default proration: Unless the contract says otherwise, property taxes are prorated between the seller and buyer on a calendar-year basis.
- Contract controls: The parties may agree to a different allocation or specify how the closing date is treated.
- Tax lien: The property-tax lien attaches on the statutory listing date, generally January 1, and delinquent liens must be addressed as part of delivering the title required by the contract.
- Available tax information: If the current bill is available, the settlement agent can use it. If it is not, the parties may use the prior year’s bill as an estimate and provide for an escrow or later adjustment.
- Multiple sellers: The seller-side amount is typically divided by deeded ownership percentages unless the sellers provide signed instructions for another allocation.
What the Statutes Say
- N.C. Gen. Stat. § 39-60 provides that, unless the contract says otherwise, property taxes on real property being sold are prorated between the seller and buyer on a calendar-year basis.
- N.C. Gen. Stat. § 105-355 provides that the property-tax lien attaches on the date as of which the property must be listed. For most real property, that date is January 1.
- N.C. Gen. Stat. § 105-360 provides that property taxes are due September 1, remain payable at face amount before January 6, and accrue interest when paid on or after January 6.
Analysis
In your sale involving a cash offer and a small prorated tax amount, the seller and buyer should first follow the purchase contract. If the contract does not provide otherwise, North Carolina’s calendar-year proration rule applies. On the seller side, your and your co-owner’s shares are typically divided by your deeded percentages unless you both direct the settlement agent to use another allocation. If you will cover all prorated taxes while your co-owner covers other costs, document that agreement in signed closing instructions or an appropriate contract amendment.
Process & Timing
- No court filing is required. Address the tax proration in the purchase contract and provide any special seller-side allocation to the closing attorney or settlement agent in writing.
- The closing attorney obtains the available county and municipal tax information and calculates the payment, credit, or debit shown on the settlement statement. The calculation may depend on whether the current tax bill has been issued.
- Review the settlement statement before closing to confirm the proration period, the treatment of the closing date, any delinquent taxes, and the division of the seller-side amount.
- If the current bill is unavailable, decide before settlement whether to use an estimate, establish an escrow, or include a written provision for a later adjustment.
Exceptions & Pitfalls
- Different contract terms: The parties may contract around the statutory calendar-year proration rule, so read the signed agreement carefully.
- Closing-day treatment: Confirm whether the contract charges the closing date to the seller or buyer rather than assuming a particular method.
- Prior-year delinquencies: Delinquent taxes are liens rather than ordinary current-year prorations and must be handled separately.
- Bill not yet issued: Using the prior year’s tax amount can produce an underpayment or overpayment. Consider an escrow or written adjustment provision.
- Ownership splits: If the sellers’ ownership shares differ or they want another division, provide clear, signed instructions to the settlement agent.
- Separate charges: Property taxes are distinct from homeowners’ association dues and special assessments, which may have different allocation rules.
Conclusion
North Carolina law defaults to calendar-year proration of property taxes between seller and buyer unless their contract provides otherwise. The seller generally bears the portion attributable to the seller’s ownership period, and the buyer bears the balance, subject to the agreement’s treatment of the closing date. Co-sellers should confirm how their amount will be divided. Review the contract and settlement statement, then give the closing attorney signed instructions before settlement if the co-owners want a different allocation.
Talk to a Real Estate Attorney
If you’re deciding how to divide prorated property taxes and closing costs in a North Carolina sale, call us at 919-341-7055 to request a free case evaluation with a real estate attorney.
