PRORATION AT CLOSING

Commercial Property Tax Proration at Closing

How taxes get split between buyer and seller at the closing table — and why the language in your purchase agreement matters more than statutory defaults in MI, IN, OH, PA, WI, and GA.

3 States

Different proration conventions across MI, IN, OH, PA, WI, and GA

Stub Period

Estimates routinely under or overstate the real bill

Re-Proration

True-up clauses protect both sides post-closing

THE STARTING POINT

How Property Tax Proration Works at a Commercial Closing

Property taxes accrue every day of the year, but they are billed in lump installments on a state-specific schedule that almost never lines up with the date of your closing. Proration is the accounting maneuver that splits each tax bill between the seller (for days they owned the property) and the buyer (for days they will own it). On a commercial transaction with a seven or eight-figure purchase price, even a small convention dispute can shift tens of thousands of dollars from one side of the closing statement to the other.

The mechanics vary state by state. Michigan and Indiana typically prorate on a calendar-year (accrual) basis, treating each levy as covering its own defined period. Ohio historically uses a due-date convention because taxes there are billed in arrears for a period that has already closed, which complicates how the closing table assigns responsibility for bills not yet issued. Layered on top of all three is the stub-period problem — the gap between the last known tax bill and the closing date, where the parties have to estimate using old millage rates and stale assessed values.

What ultimately controls is the purchase agreement. State defaults exist, but every commercial deal we see negotiates over them, because the defaults often fail to address re-proration after the real bill issues, refunds from a successful post-closing appeal, and special assessments that don't fit the standard proration template. A buyer who plans to file a year-one appeal — see our guide to appealing after purchase — has different proration interests than a seller who wants the deal closed and the books shut.

Taxes accrue daily; proration credits the seller for days they owned

Convention varies: Michigan and Indiana accrue; Ohio defaults to due-date

Stub-period estimates rely on stale millage and assessment data

Purchase agreement language controls — statutory defaults are a fallback

For the broader appeal mechanics that interact with proration, see our property tax appeal process guide and our 2026 property tax deadlines page.

Buyer and seller closing a commercial property transaction with property tax proration on the settlement statement

STATE CONVENTIONS

How Proration Works in MI, IN, OH, PA, WI, and GA

Michigan — calendar-year accrual proration. Summer levy (July 1) and winter levy (December 1) each split based on days of ownership in the period the levy covers. Uncapping after sale reshapes future bills.

Indiana — period-of-billing proration. Spring (May) and fall (November) installments are prorated based on the period the bill is meant to cover, with circuit-breaker caps applied to the post-closing assessment.

Ohio — historically a due-date convention because taxes are paid in arrears. The tax year vs. tax bill year mismatch makes purchase-agreement language essential.

Re-proration / true-up clauses — required language in well-drafted commercial PSAs to reconcile estimates once the actual bill issues post-closing.

The PSA wins.

Statutory defaults exist in every state, but the language in your purchase agreement is what actually controls the dollars at closing.

HOW IT WORKS

How a Commercial Proration Is Calculated at Closing

Five steps every settlement statement should walk through, in some order, before the closing wires.

Identify the relevant tax period

Pin down exactly what period each bill covers — Michigan summer covers a fiscal year that varies by taxing unit, Indiana spring and fall each cover six months, and Ohio bills look backward at a tax year that has already closed.

Pull the most recent known bill

Use the actual last-issued bill as the proration baseline. Confirm the assessed value behind it and check whether a pending reassessment, millage change, or uncapping event will reshape the next bill.

Compute the daily accrual

Divide the annual tax (or each installment) by the number of days in the relevant period. This is the per-diem accrual that the parties use to assign liability across the closing date.

Allocate by ownership days

Multiply the per-diem by the number of days the seller owned the property in the period and credit the buyer at closing for the seller's share of any bill that has not yet been paid (or the buyer pays the seller for prepaid days the buyer will benefit from).

Build in re-proration once the real bill issues

Include a true-up clause: when the actual bill arrives, rerun the math against real numbers and settle the difference. Without this step, stub-period estimates become permanent — and that almost always favors one side at the other's expense. Pair it with a plan to file a free post-closing assessment review to confirm the new bill is even defensible.

WHERE PRORATIONS GO WRONG

Common Property Tax Proration Pitfalls

Every one of these shows up routinely on commercial closing statements. Any one of them can shift five or six figures silently from one side to the other. For deeper context on how the underlying bills are built, see our property tax appeal process guide.

Estimating with old millage — applying last year's rate to a year where a new levy has passed and the actual bill will run materially higher

Ignoring uncapping in Michigan — the post-sale taxable value reset is not part of the closing proration, but it lands on the buyer the following year

Missing the personal property bill — equipment, fixtures, and FF&E are billed on a separate roll and routinely left out of the real estate proration

Forgetting special assessments — sidewalk, sewer, drain, and lighting district assessments are billed separately and rarely sit on the standard proration line

No re-proration clause — once the real bill issues, the stub-period estimate becomes permanent unless the purchase agreement requires a true-up

Silence on post-closing appeal refunds — without language, a successful buyer-led appeal may refund to the seller (or vice versa) under statutory defaults

Mismatched tax year vs. tax bill year in Ohio — assigning bills based on issue date instead of the underlying tax year creates double-credits or gaps

THE STRATEGIC CHOICE

Negotiate Proration Language vs. Accept the Form Default

Stock purchase agreements pick a convention without explaining the consequences. On a commercial deal, the cost of negotiating clean language is essentially zero and the downside protection is enormous.

Negotiate Clean Proration Language

Convention specified explicitly — accrual vs. due-date locked in, not assumed

Re-proration / true-up clause once the actual bill issues

Appeal-refund allocation defined for both directions

Special assessments and personal property bills covered

Stub-period estimating methodology written into the PSA

Uncapping and reassessment risk addressed in the purchase agreement

Accept the Form Default

Convention defaults to local custom — different in every county

Stub-period estimate becomes permanent if no true-up is required

Appeal refunds flow to whoever paid the bill, regardless of who economically bore it

Special assessments fall outside the proration and surprise the buyer post-closing

Old-millage estimates routinely understate the real liability

Uncapping or post-sale reassessment lands entirely on the buyer's next bill

Property taxes accrue daily, but they are billed and paid on a schedule that rarely aligns with a closing date. Proration is the accounting step at the closing table that splits the tax burden between seller and buyer based on who owned the property each day of the relevant period. On a commercial transaction the dollars are significant — a single proration error on a mid-eight-figure deal can run into the tens of thousands — which is why purchase agreements spend so much language on the proration mechanics. Our post-purchase appeal guide explains what happens to the assessment after closing, and a free property tax review is the cleanest way to confirm the prorated number you inherited is actually defensible going forward.

Under a due-date convention, taxes are prorated based on when the bill is actually due — historically the default in many Ohio transactions because Ohio property taxes are paid in arrears, with the bill issued covering a prior period. Under an accrual or calendar-year convention used widely in Michigan and Indiana, taxes are prorated based on the period the tax bill is intended to cover, regardless of when it is invoiced. The two methods can produce materially different credits at closing on the same property, which is why the convention should be specified in the purchase agreement rather than left to local custom. Our property tax deadlines guide lays out the billing cycles in each state, and our pages on Michigan, Indiana, and Ohio cover the assessment timing those bills are built on.

Michigan splits the commercial tax bill into a July 1 summer levy and a December 1 winter levy, each covering a different fiscal year depending on the taxing unit (school, county, city, township). A clean calendar-year proration treats each levy as covering its own period and credits the seller for the portion of each levy attributable to days the buyer will own the property. The more important Michigan wrinkle is uncapping under Proposal A — the transfer of ownership resets the taxable value cap, and the bill the buyer pays in the year after closing is usually dramatically higher than the bill that was prorated at the closing table. The Michigan Department of Treasury publishes the summer/winter cycle mechanics that drive the underlying numbers.

Ohio property taxes are billed for a tax year that has already ended, with first-half and second-half installments collected during the following calendar year — meaning the bill arriving in your mailbox today is for a period that closed months ago. That gap between tax year and tax bill year forces proration drafters to decide whether the seller is responsible for the bills that have already been issued (and are owed), the bills that will be issued in the future for periods the seller owned the property, or some combination of both. Different counties and different practitioners use different defaults, which is why an Ohio commercial purchase agreement should spell out the convention explicitly. The Ohio Department of Taxation publishes the real property billing schedule, and our Ohio property tax appeals page covers what happens to the underlying valuation after closing.

That depends entirely on what the purchase agreement says. Without specific language, statutory defaults in each state generally direct refunds to whoever paid the bill — which can mean the seller recovers the proration credit they already gave the buyer, or the buyer pockets a refund on a period the seller actually owned. A well-drafted commercial purchase agreement includes a re-proration or true-up clause that allocates any post-closing refund or additional bill back to the party who economically bore that period. This matters especially for buyers planning to file an appeal of the post-closing assessment, because the savings in the appeal year can be partially clawed back if the agreement is silent.

Most commercial closings happen before the next tax bill is finalized, so the parties have to estimate the tax for the period between the last known bill and the date of closing. The usual shortcut is to apply the most recent millage rate to the most recent assessed value, but that misses any pending reassessment, upcoming millage change, or new special assessment that hits after closing. A robust purchase agreement requires re-proration once the actual bill is issued, with a true-up payment in either direction. Skipping the true-up favors whichever side benefits from the estimate — usually the buyer when values are rising, since the old-year proxy understates the actual liability. Read our NNN appeals analysis for how stub-period and re-proration mechanics flow through to net-lease tenants.

On any commercial transaction with real dollars at stake, you should negotiate it. Default language in stock purchase agreements often picks a convention without explaining the consequences, omits re-proration entirely, and is silent on appeal refunds, special assessments, and personal property bills. Pushing for explicit treatment of each of those items costs nothing at the drafting stage and protects six and seven-figure outcomes downstream. For buyers especially, pairing strong proration language with an early post-closing appeal — see our commercial property tax consultant page — is the cleanest way to lock in the right tax basis for the rest of the hold period, and a free property tax review will confirm whether the inherited assessment is worth challenging.

RELATED RESOURCES

Keep Going on Closing-Related Tax Mechanics

Michigan Uncapping — Why the buyer's first post-closing bill jumps

Appealing Property Taxes After Purchase — Reset the post-closing assessment

Triple Net Lease Property Taxes — How proration flows to NNN tenants

2026 Property Tax Deadlines — Billing cycles in MI, IN, OH, PA, WI, and GA

Property Tax Appeal Process — Step-by-step appeal mechanics

Commercial Property Tax Consultant — Who handles post-closing appeals

Just Closed? Lock In the Right Post-Closing Tax Basis.

We review post-closing assessments at low upfront cost across MI, IN, OH, PA, WI, and GA — just a modest filing retainer. Contingency-based: beyond that retainer, no fee unless we save you money on the underlying bill the proration was built on.