If you are buying or selling real estate in the state of Illinois, one of the biggest line item dollar amounts will be the real estate tax proration (credit) given by the seller of the property to the buyer.
In Illinois, all real estate taxes are paid one year in arrears, meaning, that any payments made in the year 2017, are actually going towards your 2016 tax bill. Due to this, all sellers have to give their buyers a real estate tax credit for the number of days they owned that property in that calendar year.
How do we figure out the tax credit amount?
Depending what is agreed upon in the real estate contract, the seller will usually give 105% (and even up to 110%) of the last known county tax bill, prorated for the number of days in the current year the seller owned the property. In the real estate world, we bump up the number 5 – 10% because we assume that the real estate taxes on the property will increase (and that is a pretty safe bet to make).
Once we know the percentage the seller is giving, then we need to know what day will the actual closing take place. Once we have all that information, I can accurately figure out what the real estate tax credit will be.
Example:
If the closing date is on June 15 (the 166th day of the year)
Take current tax bill and multiply by the agreed upon percentage
Then divide by 365 (to get the daily rate)
Then multiply that by 166 (number of days owned in 2017)
This number is the tax credit the seller will give to the buyer.
If you have any real estate questions, contact us, we are here to help!