The property tax adjustment at closing is a crucial aspect of real estate transactions to ensure a fair distribution of tax responsibilities between buyers and sellers.  We understand the importance of accurate property tax adjustment at closing to avoid any surprises. In this blog post, we will guide you through the process of property tax adjustments, explaining how it works and its significance for both buyers and sellers. Whether you are a first-time homebuyer or an experienced investor, this information will empower you to navigate the closing process with confidence.

Understanding Property Tax Adjustments

property tax adjustment at closing

Whenever a property changes hands, it is essential to ensure that each party pays its appropriate share of property taxes. This process is known as property tax adjustment. In the City of Edmonton and Calgary and most other municipalities in Alberta, property taxes are due on June 30th each year, covering the entire calendar year. To ensure a fair distribution of tax responsibilities, property tax adjustments are calculated based on whether the taxes have been paid in full or not.

Calculating Property Tax Adjustments

property tax adjustment at closing

When the property is sold, if the seller has paid the property taxes in full, the buyer will owe the seller a proportionate share of the taxes. Conversely, if the taxes have not been paid, the buyer will receive a credit for the seller’s share of property taxes. These calculations are meticulously done based on the exact closing date. In Alberta, it is customary for the seller to bear responsibility for the entire closing day, even if the exchange of keys typically occurs at 12:00 noon.

Responsibilities After the Sale

property tax adjustment on closingOnce the sale is complete, the seller’s monthly payments for property taxes cease. As the lawyer for the seller, our office initiates the request to stop these monthly payments. However, it becomes the buyer’s responsibility to arrange their own monthly payments, as the municipality requires direct authorization from the new property owner. This authorization can only be obtained after the title is transferred to the new owners.

Avoiding Penalties and Ensuring Payment

Failure to make immediate arrangements for monthly payments can result in receiving a bill for the full amount owed until December 31st. If the closing date falls before June 30th, buyers have until that date to pay the outstanding amount without penalties. However, if the closing date is after June 30th, the remaining amount must be paid in full within 30 days to avoid penalties.

Conclusion:

Property tax adjustments at closing are a critical aspect of real estate transactions. Understanding how these adjustments work is essential for both buyers and sellers to ensure a fair distribution of tax responsibilities. By being aware of the calculations, responsibilities, and potential penalties, parties can navigate the closing process with confidence. At Passgo Real Estate Law, we are committed to guiding our clients through property tax adjustments and providing comprehensive assistance to ensure a smooth and transparent experience.