Why are real property taxes prorated at closing?

Prorating real property taxes at closing is essential because property taxes are typically assessed on a calendar year basis but are paid in arrears. This means that at the closing date, the seller may have already accrued property taxes for the period but has not yet paid them. To ensure that both parties pay their fair share of the taxes for the time they owned the property, the taxes are prorated.

For instance, if a property is sold partway through the tax year, the seller is responsible for the portion of the year's taxes that corresponds with their ownership before the closing date. The buyer then takes over the property and assumes responsibility for the remainder of the year’s property taxes. This adjustment ensures fairness and financial accuracy in the transfer of property ownership.

The other options do not accurately reflect how property taxes work in this context. Taxes being paid in advance would lead to different accounting methods, and saying they are always paid by the buyer doesn’t take into account the seller's responsibilities prior to the sale. The option stating that taxes do not apply at closing is factually incorrect as property taxes are a significant and relevant transaction consideration.