By Matthew A. Quick
For a more general article on real estate tax proration go here.
Real estate taxes in Cook County are annually paid in two installments (typically due about March 1st and August 1st) and are paid in arrears, which means the taxes paid in 2018 are for taxes accrued in 2017. Cook County has adopted an accelerated billing method, which means the first installment of taxes is 55% of the previous year's total tax amount. It is considered accelerated billing because a tax is levied on real estate without the County ascertaining the tax rates (in other words, a portion of the tax is paid before the actual amount of tax is calculated). Therefore, the first installment of taxes alone cannot be used to determine the entire year's tax obligation, because the entire year's tax obligation has not yet been calculated.
To prorate Cook County taxes for a home sale, look to the last ascertainable full tax year. For example, if a home sale occurred in May of 2018, at a time when the taxes for 2017 were being paid, then 2016 will be the last fully ascertainable tax year, because the 2017 taxes had not yet been calculated (bills are typically published in June showing the full year tax less the March payment). Once the most recent full tax year has been found, look to the real estate contract to determine the proration rate (typically between 105% and 110%). Finally, determine the closing date and count the number of days into the year the date represents (June 15th is 166 days). Let's prorate!
Assume that the closing date was set for June 15, 2018. The last fully ascertainable tax year was 2016 and the total tax for that year was $10,000. We will assume a proration rate of 110%. We know the March 2018 payment was in the amount of $5,500 (55% of the last full ascertainable tax year).
Second Installment for 2018 is determined by multiplying the last fully ascertainable tax year ($10,000) by the 110% proration factor (10,000 x 1.10 = 11,000) and subtracting the amount already paid in March payment (11,000 - 5,500 = 5,500). Thus, the tax proration credit for the 2nd installment of 2017 taxes (paid in 2018) would be $5,500.
The proration for the days leading up to closing is determined by again multiplying the last fully ascertainable tax year ($10,000) by the 110% proration factor (10,000 x 1.10 = 11,000). Determine the amount of days from January 1, 2018, to June 15, 2018 (166 days). Reduce the amount of the total prorated tax ($11,000) to the amount of tax owed per day ($11,000/365 = 30.137). Multiply the amount of days by the amount of tax per day (166 x 30.137 = $5,002.74). Thus, the prorated amount for the days spent at the property for 2018 (to be paid in 2019) would be $5,002.74.
The total amount of tax based upon this proration would be $10,502.74 ($5,500 + $5,002.74).
The tax proration is credited from the seller to the buyer at closing, because, as noted above, the taxes will not become due until a later date.