Understanding Long and Short Tax pro-rations

Understanding the differences of LONG and SHORT of property tax pro-rations in Ohio.

Property taxes in Ohio are 6 months in arrears and are calculated at the closing of a real estate transaction using either short pro-ration or the long pro-ration method.

As long at the current tax bill is paid in full, taxes are not considered to be delinquent and are never required to be paid beyond the current bill by the state or county.

Typically, Montgomery County Ohio is the primary area that uses and calculates the short pro-ration of taxes.  Almost all other surrounding counties utilize the long pro-ration method. It is very important that your Realtor explain the differences between the two methods of calculating the tax pro-rations so there aren’t any surprises at the closing table.

If a seller purchases their home and the short pro-ration method was used in the purchase and they sell their home using the same method, they are paying exactly what they should have.  The same is true if the purchase was completed by using the long pro-ration method of taxes.

Perhaps this will help you to understand the differences between the two methods.

SHORT: Prorating the "next" bill due, which will fulfill all requirements of having taxes current, but it relates to a time period six‐month in arrears.

LONG: Prorating to actual day of ownership, taxes collected in advance of the bill due. The seller pays the next bill due after closing and prorated share of the bill after that.

The SHORT method: At closing, the purchasers receive a prorated share of taxes from the seller. For instance, if a closing is on March 24th, the sellers, under the terms of the standard Purchase Agreement, and using the Montgomery County (short) method of proration, will owe the purchasers taxes for 82 days (counting January 1st through March 23rd, purchasers are responsible for the day of closing). This amount will be credited to the purchasers at closing. Then, when the June tax bill arrives, they will pay the full amount of that bill. The purchasers will be paying the balance of the six‐month period (counting March 24th through June). Again, this June bill relates to the time period from July through December of the previous year as far as the state and county are concerned.

EXAMPLE: SHORT: Using closing date of March 24^th and the semi-annual taxes are $1000.00 the buyer can expect to receive a tax pro-ration credit of $449.32 on the closing statement.

The LONG method: Traditionally in surrounding counties, the agreement reached between buyers and sellers is to have the sellers pay taxes for the actual days they owned the property. This is accomplished by having the sellers pay the entire "next" bill after closing and then prorating the bill due six months after that. Using our previous example of a March 24th closing, the sellers would pay the future June bill in its entirety. Then the future December bill would be prorated between the sellers and buyers, with the sellers paying approximately 82 days and the buyers paying the remaining 98 days of the six‐month period from January through June. This is commonly referred to as the "LONG” proration. With the LONG proration method, the sellers are actually paying taxes before they are due.  It is reasonable to assume that the sellers and purchasers will thoroughly examine all terms and conditions of an offer to purchase when it comes to determining the short and long tax pro-ration methods. The title company will calculate the exact amount of the pro-rated taxes on the final closing statement, commonly referred to as the HUD1.

Example: LONG:  Using closing date of March 24^th and the semi-annual taxes are $1000.00 the buyer can expect to receive a tax pro-ration credit of $1449.32 on the closing statement.

Hopefully, this information will help educate both buyers and sellers understand the key differences of short and long tax credit pro-rations.  Just because your home is in Montgomery County, that does not mean that a purchase offer written on your home is requesting the short pro-ration method is used. Carefully examine any purchase contract before signing on the dotted line.