Property Tax Proration at closing—Latest known times latest known is not always safe.

Wisconsin property taxes are billed for the year after Mid-December. The basis for the tax is the value of the real estate and improvements as of January 1 of that year. This value for the year is not known before late spring. The second factor in the formula to determine your tax bill is the “Mill Rate”; a percentage of the assessed value. This Mill Rate is not available until the fall when the local government budget and expenses are determined.

A timeline for obtaining the numbers that go into the formula to determine the 2019 Tax Bill is this:

January 1, 2019
The Value of Real Estate and Improvements will be set for the property as Of January 1….This Value will not be known until late Spring
June 1, 2019
2019 value of the real estate and improvements is sent by city to Owner
November 2019
Local Governments approve their budget for 2020, and establish a Mill Rate (percentage per $1,000 value of property)
December 2019
Property Tax Bills are mailed to property owners.

All offers written to close after December 31, 2018 will require some thinking to safely complete the Closing Prorations section of the Offer. The Offer provides 5 choices to select from, and none of these choices is the right one to select 100% of the time. Knowing the date of closing you can complete the formula for each choice and see how the outcomes differ. Example:

New Construction: On January 1, 2018 the real estate was the lot only. Assessed Value of lot for 2018: $100,000. Assessed Value of improvements for 2018: $0. On January 1, 2019 the lot will include an improvement of an 100% completed house. The Offer you are drafting today will close March 30th at a purchase price of $750,000. At closing there will be three months of property taxes to be paid, presumably by the seller. If the you select either of the first two choices: Net General Real Estate Taxes for the preceding year, or current assessment times current mill rate, the buyer will receive a credit from the seller for a fraction of the actual cost of the three months of property taxes.

Jan 1, 2018: $100,000 Value. March 30, 2019 the assessment for 2019 will be unknown. The 2018 Mill Rate will be known. Assume it is $20.00 per $1,000. The formula to determine the annual tax using choice 1 or 2 is (100 X $20) = $2,000 annual tax bill. The portion paid at closing by the seller will be ($2000/365) = $5.48 per day times 89 days = Y. Y=$487.67. Here’s the problem. In June the tax assessment will arrive in the new owner’s mail box. The assessment may be the purchase price $750,000. ($100,000 for the land, and $650,000 for the improvement (house)). When the tax bill arrives in December at the 2019 Mill Rate of $21.50 per thousand, applied to the 2019 Assessment of $750,000, the bill will be $16,125 or $44.18 per day— a tad bit more than $5.48 per day or $488 for the first 90 days of the year. The seller’s fair share of the tax bill was more like $3,900.

It gets more complicated as we adjust the factors but you get the idea… All Realtors are not the same. Some learn to think be accurate, and others do what they think they were told and take their chances.

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