What Taxes Do You Pay at Closing?
Benjamin Franklin is famous for saying that there were only two things certain in life: death and taxes. And while taxes, including property taxes, are an inevitable fact of life, they can also be quite confusing.
When you are a homeowner there is no way around property taxes—whether you have a mortgage, paid your home off, are buying, and even when selling!
Let’s break down what property taxes are, who pays property taxes, and how paying property taxes may benefit you at tax time.
What are Property Taxes?
Property taxes are fees that are paid to the state, county, and other local authorities. These agencies will then use the money to fund a multitude of services, such as local schools, first responders, law enforcement, road upkeep, and water/sewer line maintenance.
A local tax assessor determines property tax. When you purchase a home, a tax appraiser will assess the property’s value based on many factors including the local government’s tax rate. But generally speaking, the more valuable the land is, the higher the property taxes.
Do not worry though—getting the math right on the exact property tax value at closing is the responsibility of the lender or title company. If you are working with True Concept Title, we will provide you with a “cash due at closing” document that will provide the exact value. Leading up to closing, most lenders will be able to provide you with an estimate that will be pretty close to the exact closing number.
The lender or title company will provide you with a “cash due at closing” document that provides the exact amount at closing.
Who Pays Property Taxes?
There is no way around paying property taxes if you are a property owner. Taxes are not just exclusive to homeowners, but they apply to business owners as well. Even if you were gifted the property, you are still required to pay property taxes in many states including Florida.
Whether you are currently buying or selling a home, you may still be responsible for taxes at closing, and this usually happens with a prorated amount, which is paid at closing. The seller will generally pay a prorated amount for the amount of time they lived at the property that tax year and the buyer will pay the remaining prorated amount of property taxes to cover the rest of the calendar tax year. Remember, anything is negotiable between the buyer and seller, so this may not always be the case, as long as someone pays them.
If you have already purchased your home in a previous year, and you have a mortgage on your property, you will pay for your taxes through your monthly mortgage statement, and this money will be held in an escrow. When the time comes to pay your annual property taxes, the funds will then be available. If your home is paid in full, you will be asked to pay the local tax authority directly.
No matter the value of your property—whether it is $10,000 or $1,000,000—you will still have to pay property taxes.
Tax Benefits for Florida Homeowners
Owning a home in Florida has many perks and at this time of year, there are many tax benefits homeowners can take advantage of. When it comes to filing your tax return make sure to pay attention to these specific tax benefits for homeowners:
Real estate property taxes:
State and local property taxes are deductible in Florida to every homeowner. Whether you pay your taxes through an escrow account set up by your mortgage lender or you pay directly to the taxing authority, make sure you take advantage of this tax deduction.
Purchased a new home last year:
Did you purchase a new home last year? If so, you can deduct the real estate taxes you paid at closing. Make sure to have a copy of your Settlement Statement, or closing statement, as these real estate taxes you paid at closing will not be on the 1098 tax form you received from your mortgage lender.
Florida Homestead Exemption:
While the Florida Homestead Exemption is not exactly an income tax deduction it is still a huge benefit to Florida homeowners. This exemption can decrease the taxable value of your primary resident by as much as $50,000, which in turn means lower real estate taxes.
As a national title company, our experts in partnership with your Realtor and mortgage lender can help you understand the true tax ramifications of owning a new property.
Handling Property Taxes at Your Closing
Buying a home is a huge financial investment. When you are looking to purchase a property, do not forget to take a close look at the property’s tax value and make sure you are in a position to financially cover the mortgage payment and the annual tax payments.
True Concept Title is a professional, full-service title and closing company that understands the little details and how they all come together. We are experts at preparing detailed financial documents so you can be ready and prepared at closing.
If you are looking for help with your real estate transactions and have any property tax questions, call True Concept Title at 813-263-7168.
