On a closing statement, how are taxes and rental income typically handled?

In real estate transactions, taxes and rental income are typically prorated on the closing statement to ensure that both the seller and buyer are fairly charged or credited for the periods of time they own the property during the tax year or rental period.

Proration means that expenses and income are allocated proportionally based on how many days each party owns the property. For example, if the seller has owned the property for part of the tax year, they will be responsible for the taxes accrued during their ownership. Conversely, the buyer will be credited for the portion of the year they will be responsible for after the closing date. This practice ensures that neither party is unfairly burdened with expenses or revenue that belong to the other party for time periods they were not in possession of the property.

By prorating these items on the closing statement, it clarifies the financial responsibilities of both the buyer and seller, creating a clear and equitable settlement for the transaction.