Tuesday, August 3, 2010

Property Tax Credit

One of the most common questions we get asked is "What is the property tax credit and how is it calculated?"

Property taxes are paid in arrears in Colorado, meaning the property taxes for this year are paid to the county next year. If you buy a house on August 15, 2010, then the property taxes for all of 2010 will be due in 2011. But wait! You only lived in the house from August 15, 2010 until the end of the year - why should you have to pay the taxes for all of 2010? Well, you don't. That's where the property tax credit comes in.

At the closing, the seller will pay you one day's worth of property taxes from January 1 until the last day that they owned it - August 14. That's 7 1/2 months of taxes that get moved from the seller's account into the buyer's account.It doesn't matter when you close on your house - you will only pay property taxes for the time you owned it. As the year goes on, the property tax credit gets larger. For example, if you close on a house on January 2, you will only get 1 day of taxes from the seller. If you close on December 31, you will get an entire year of taxes from the seller (less the one day you lived in it - December 31). This is important to know if you are asking the seller to pay some of your closing costs.

If the closing costs are $5,000 and the property tax credit is $2,000, then the most you should ask the seller to pay is $3,000. You don't need all $5,000 from the seller, so don't ask for it. Instead, ask for $3,000 in closing costs and lower your offer price by $2,000. The seller will end up netting the exact same amount of money, and you will pay $2,000 less for the property. Both parties will be happy. If both parties are happy, you have a well-constructed sales contract.

One more reason why you need to get your home loan financing from people who understands everything there is to know about mortgages - people like The Mortgage Experts!

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