Property Tax FAQs
Tuesday, July 26, 2016
I bought (or sold) the property several months ago, and the taxes are still in the name of the Seller.
This is a frequent occurrence. Most municipalities update their tax rolls annually, usually for the first quarter of the following tax year (August 1st). Thus, the name of the Seller likely will remain on the tax rolls until then. The Seller is not required to make the tax payment, since they are no longer responsible for the tax payments. Further, the Seller does not need to give the Buyer a copy of the tax bill.
I escrowed my taxes at closing and I received a copy of the tax bill. Does this mean my taxes are being paid through escrow, and do I need to provide a copy of the bill to the lender?
All municipalities mail a copy of the tax bill to the owner of record, regardless of whether the taxes are being escrowed. If an owner is escrowing taxes, the lender's tax service provider is responsible for paying the taxes and will obtain a copy of the tax bill from the city or town. As an owner of record that has taxes being paid through escrow, you can either file the copy of the tax bill, or recycle it.
When are property taxes due in Massachusetts?
Most municipalities require property taxes to be paid on a quarterly basis. The tax year begins July 1st. The taxes are due as follows:
1st Quarter (July 1st - September 30th) = due on Aug. 1st
2nd Quarter(October 1st – December 31st)= due on November 1st
3rd Quarter(January 1st – March 31st)= due on February 1st
4th Quarter (April 1st – June 30th) = due on May 1st
The first two quarter are “estimated” taxes. The third and fourth quarters are “actuals.”
Does the Purchase and Sale Agreement address taxes?
Yes, the P&S requires taxes to be adjusted as of the closing date.
I am selling my home, I do not escrow my taxes, and my closing is prior to the tax due date. Do I need to make my tax payment?
No, you do not. The taxes can be paid by the settlement attorney at closing. The final settlement statement will contain a tax adjustment for the daily per diem. Thus, if the quarterly tax payment is $1,200, and you close on July 30th, the settlement statement will reflect an approximate $400 adjustment from the Seller to the Buyer.
I am selling my home, I do not escrow my taxes, and my closing is after the tax due date. Will I be reimbursed for any taxes that I pay in advance?
Yes, you will be reimbursed. The settlement statement will reflect an adjustment of any amount paid in advance for the daily per diem. Thus, to return to our example, if the quarterly tax payment is $1,200 and the closing is on August 30st, the closing attorney will reimburse you approximately $800 to cover the July 1st to August 30th period that you have already paid.
I am selling my home, I escrow my taxes, and my closing is prior to the tax due date. How do I avoid a double tax payment?
If you are escrowing your taxes, most lenders schedule an automatic payment from the escrow account two weeks prior to the due date. Typically, the closing attorney will include the quarterly tax payment on the settlement statement, but hold the check in escrow until the lender’s escrow payment can be verified with the municipal tax collector on the due date in order to avoid a “double payment.”
I am purchasing a home and I want to ensure there are no further taxes owed.
Taxes “run with the land” so the owner of record is responsible for all back taxes owed on a property. Prior to closing, the closing attorney orders a municipal lien certificate “MLC” from the city or town, which shows the taxes owed. The MLC costs between $25 to $65, depending upon the municipality. The closing attorney is required to collect any back taxes owed by the Seller at closing and properly adjust the current taxes. The MLC is recorded with the Registry of Deeds at closing so that the Buyer has proof that there are no back property taxes. Further, if a Buyer obtains an owner’s title insurance policy, then they are held harmless and indemnified from any monies owed for back taxes.
Many municipalities provide the property taxes on-line (see, e.g., the City of Boston at https://www.invoicecloud.com/portal/(S(mozjkd22c41hse33zp2ec0ut))/customerlocator.aspx?iti=8&bg=7e2d0342-51f5-4f68-83af-3f05f5df1321&vsii=28)
When do I apply for a Residential Tax Exemption?
Some cities offer residential tax exemptions that are available if the property or unit is your primary residence. If there is an existing residential tax exemption in effect, it carries over to the new owner.
Most tax exemptions require that the new owner live in the property one full calendar year before the exemption goes into effect. Here are the rules from the City of Boston: http://www.cityofboston.gov/assessing/exemptions/resexempt.asp
Fiscal Year 2016 (July 1, 2015 - June 30th, 2016): To be eligible for the residential exemption, the property owner must have owned and occupied their property on January 1, 2015.
Fiscal Year 2017 (July 1, 2016 - June 30, 2017): To be eligible for the residential exemption, the owner must have owned and occupied their property on January 1, 2016.
The residential exemption is applied to the Fiscal Year Third Quarter tax bill that is issued in late December.
As examples, if Buyers closed on December 31, 2015, they can apply for a residential tax exemption with the City of Boston in the third quarter of 2017. However, if the Buyers closed on January 3, 2016, they would not be eligible to apply for a residential tax exemption until the third quarter of 2018.
(Note that the Town of Brookline has similar rules http://www.brooklinema.gov/161/Residential-Exemptions )
Are my property taxes required to be escrowed at closing?
Your property taxes are not required to be escrowed at closing. However, property taxes are “super liens” which have priority over the mortgage. Thus, for this reason, lenders prefer that your taxes be escrowed and they often will build a 1/8 of a point reduction into the interest rate if you escrow the taxes.
How does the lender calculate my tax escrows at closing?
The lender has a third party tax service provider manage the escrows. The lender will typically keep one or two months of taxes in reserve to serve as a cushion to ensure payment. The tax escrow is governed by federal law. If the amount in reserve exceeds the maximum allowable cushion, you will be reimbursed. When you refinance or sell and payoff the mortgage, the lender is required by federal law to reimburse the remaining tax escrows within thirty days of the payoff.
How are taxes impacted for new construction or condominium conversions?
As stated above, the municipality typically does not update the tax roll for two to four quarters. Thus, the property taxes are calculated based on the prior property or land usage (which is typically lower). Some municipalities “claw back” the balance of the taxes once the current rate is calculated. You should consult with your closing attorney about the issue further. A Seller’s attorney typically issues a “tax letter” for new constructions/ condominium conversion transactions to provide details in advance of the closing.
How do semi-annual tax payments work?
In a few municipalities (e.g., Cambridge), taxes are due twice a year. The payments are due in November and May. If escrowing, the lender will hold at least six months of taxes at closing.
In addition to property taxes, what else needs to be paid or adjusted at closing?
The water bill needs to be paid before at closing. Utility bills are in the name of the Seller and do not run with the land, so they do not appear on the settlement statement.