Understanding Property Taxes at Closing in Texas

Property taxes are an unavoidable responsibility for every Texas homeowner. Since Texas does not have a personal income tax, property taxes are a primary source of funding for essential local services, including schools, law enforcement, and infrastructure maintenance.

While all homeowners must pay property taxes, the amount varies based on several factors, such as the property’s appraisal value, location, and the timing of the home purchase. If you're a first-time homebuyer, you may not initially focus on property taxes at closing, but they play a significant role in the final transaction. Most lenders will escrow property taxes at closing, ensuring funds are set aside to cover them. While buyers typically share some tax responsibility, the exact amount depends on how closing costs, property taxes, and other fees are calculated.

What is Escrow?

Escrow is when funds are held by a neutral third party, such as a real estate attorney or title company, until certain conditions are met. In real estate transactions, escrow helps manage property tax payments at closing, preventing unexpected financial burdens for buyers and sellers. While you don’t have to calculate prorated taxes yourself, understanding how the process works will help you avoid surprises.

To make things easier, we've put together this guide to explain how escrowed property taxes are typically handled during closing in Texas.

 
Prorated Property Taxes for Buyers and Sellers

Because property taxes in Texas are paid in arrears (for the previous year), both buyers and sellers are only responsible for the taxes accrued during their period of ownership. Although this may seem complex, the process of splitting the tax obligation at closing is straightforward.

How Does Proration Work?

The seller covers property taxes from the beginning of the tax year up to the closing date.
The buyer is responsible for property taxes from the closing date onward, including any unpaid taxes from the seller.
If the seller has already paid property taxes for the year, the buyer typically reimburses them for the prorated amount. If the seller has not paid property taxes, their portion is credited to the buyer at closing.

Because Texas property taxes are officially assessed in October, the exact tax amount isn’t always known at closing. Instead, estimates are used based on the previous year’s tax bill. If a home sale closes before April 1st (when county appraisal districts release updated values), the prior year’s taxes are used for calculations. If the sale occurs between April and October, prorations are estimated based on the current market value multiplied by the previous year’s tax rate. Once actual tax bills are available, any necessary adjustments can be made.

 
Who Pays Property Taxes at Closing?

Home sales involve multiple fees, with some falling on the seller and others on the buyer. Property taxes are typically included in closing costs, and who pays them depends on the terms of the purchase contract.

How Much Are Property Taxes at Closing in Texas?

The exact property tax amount at closing depends on the closing date and the proration calculation. Fortunately, your lender or title company will provide a “cash due at closing” statement that outlines all the costs, including property taxes. Additionally, your lender will include an estimated closing cost breakdown when issuing a loan offer, helping you prepare for the financial requirements of your home purchase.

Understanding how property taxes are handled at closing can help ensure a smooth transaction and prevent unexpected expenses. By familiarizing yourself with proration and escrow, you’ll be better prepared for this crucial step in homeownership.