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Are Property Taxes Paid In Advance or Arrears?

Ruchi Gupta - Author
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Mar. 11 2022, Published 5:13 a.m. ET

When it comes to the property tax, things can be confusing. If you’re considering buying a house or have just bought one, you may have questions about your property tax, such as whether it's paid in advance or arrears.

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For many people, a home purchase is the biggest purchase they’ll ever make. With your own home, you can forget about the monthly rent and may save more money to fund your retirement savings account. However, you’ll need to deal with property tax, and defaulting on it can cost you your home.

How property taxes work and what you need to know

Property taxation never stops, so it’s important to think over it carefully when making a home purchase decision. The tax is paid to your local government, and the money is often used to fund public services, such as the fire department, schools, and road maintenance. The amount you owe depends on a variety of factors, such as where you live and your home’s value.

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You may have to pay the tax either in a lump sum or installments. Late payments are usually penalized and the penalties can put you in massive debt if you keep missing the tax deadline.

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Depending on where you live, your property tax may include MUD tax. But some local governments also offer property tax exemptions. For example, you may be spared of paying the tax if you’re disabled or a veteran.

If you purchased the home on a mortgage, the tax may be built into the monthly mortgage payment, meaning you won’t have a separate property tax bill as long as you’re paying the mortgage. The lender will shift the tax responsibility to you once you pay off the mortgage.

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Are property taxes paid in advance or arrears?

If you’re paying a property tax in advance, it means you’re prepaying the bill. For example, you may be billed in 2022 for the services your local government will offer in 2023. Another way to understand it is like paying for a restaurant meal before you eat.

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If you’re paying a property tax in arrears, it means you’re postpaying the bill. It shouldn’t be confused with being in arrears on taxes, which means you’re late with paying your dues. An example of paying a property tax in arrears is like being billed in 2022 for the services the local government offered in 2021.

Whether you need to prepay or postpay the property tax on your home depends on where you live. While some states have adopted advance or arrears property tax payment schedule, others mix them up, with part of the bill prepaid and one part postpaid. It's also worth noting that you may get a discount on your bill if you pay early, and that you can deduct property tax on your federal income tax return.

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