Property tax is the money collected by local tax authorities from property owners, used to fund public services like education, security, and infrastructure.
Property owners have an annual obligation to pay property taxes. The tax amount is calculated based on the property’s value, determined by the local tax authority.
Property tax is calculated as follows:
Property Tax = Property Value x Tax Rate
Property Tax Allocation Ratio
In real estate transactions, buyers and sellers agree on how to divide the property tax obligation for the tax year. This allocation ratio depends on each party’s ownership duration.
Dividing the property tax allocation ratio offers several benefits:
- Avoid Double Payment: Dividing the tax liability helps buyers avoid paying property taxes for the period before they take ownership.
- Fair Financial Responsibility: The allocation ensures that buyers are only responsible for property taxes they need to pay based on their ownership period.
- Transparent Transactions: Allocating property taxes according to a ratio ensures transparency in transactions. Buyers can review tax details when purchasing property to prevent discrepancies.
Property tax is an obligation for property owners, but it also benefits the community and property owners. Both buyers and sellers of real estate should familiarize themselves with property tax regulations to safeguard their interests or seek advice from professionals.
