Prorations: taxes in arrears, rent, HOA dues

Bottom line: A proration is a fair split of a bill by days. You find the daily rate, count each side's days, and multiply. The contract decides the method and who owns the closing day, so read it first.

Why we prorate

Bills do not stop on the closing date. Property taxes, HOA dues, and rent run on their own calendars. If the seller paid for a period that the buyer will use, the buyer repays the seller. If the seller owes for a period before closing and nobody has paid it yet, the seller credits the buyer. The closing statement shows these as matching entries (more in c3-04).

Steps for any proration

1. Get the bill amount and the period it covers.
2. Choose the year: 365-day (actual days) or 360-day, also called the banker's year (every month counted as 30 days). The contract or your lender's rules say which. Colorado's standard contract proration treatment should be read from the form you are using.
3. Daily rate = amount / number of days in the period.
4. Count days for each side. State who owns the closing day. Some contracts give it to the buyer (the buyer owns the day they close), others to the seller. The question or contract tells you; if it is silent, say your assumption. Teach both: the difference is exactly one day of the bill.
5. Amount = daily rate x days. Round to cents only at the end.

Taxes in arrears

Colorado property taxes are paid in arrears: this year's tax is billed and paid next year. So at a closing in the summer, the seller has used the house for part of the year and nobody has paid that tax yet. The seller owes it, but the buyer will receive the bill, so the seller credits the buyer at closing. Since the new bill does not exist yet, the usual method is to estimate with the most recent bill. If the figures are later found to be wrong, many contracts allow a re-proration if the parties agree to it. That timing rule (and when the halves are due) is not in the course sources, so confirm it against the contract form and the county treasurer.

Careful: the seller does not credit the buyer for last year's tax that is already paid, and an unpaid prior-year bill must be paid off at closing from the seller's money.

Rent, deposits, and HOA dues

• Rent already collected by the seller. If a tenant paid the month's rent to the seller, the buyer owns the part of the month after closing, so the seller credits the buyer for those days. Rent not yet collected is usually not prorated unless the contract says so.
• Security deposits. The seller holds the tenant's deposit but it belongs to the tenant. The seller credits the buyer for the full deposit, because the buyer inherits the duty to return it.
• HOA dues. Dues are typically paid in advance (for a month or quarter ahead). If the seller paid dues covering days after closing, the buyer repays the seller for those days.

Prepaid vs accrued

A prepaid item was paid before the period it covers (HOA dues, insurance, rent collected early). The buyer usually reimburses the seller for the part the buyer will use. An accrued item has been earned or owed but not yet paid (Colorado property taxes in arrears, utility use). The seller credits the buyer for the seller's share. Quick test: who paid? and who used the days? If the seller paid for days the buyer uses, the buyer pays the seller. If the seller used days that nobody has paid for, the seller pays the buyer.

Example with real numbers: three 2026 closings

1. Taxes, 365-day year. A $500,000 house closes Friday March 13, 2026, with the buyer owning the closing day. Last year's tax bill is $3,285 and is used as the estimate for 2026.

1. 2026 is not a leap year, so there are 365 days. Daily rate = 3,285 / 365 = $9.00.
2. Seller's days: January 1 through March 12 = 31 + 28 + 12 = 71 days.
3. 71 x $9.00 = $639. The seller credits the buyer $639.
4. If the seller owned the closing day: 72 days x $9 = $648.
5. 360-day year: daily rate = 3,285 / 360 = $9.125. Seller's days with 30-day months = 30 + 30 + 12 = 72. 72 x 9.125 = 648 + 9 = $657.

The 360-day answer is $18 higher than the 365-day answer ($657 - $639). Same house, same date, different method. That is why the contract matters.

2. Rent, 365-day style (actual days in month). A rented duplex closes Monday June 15, 2026. The tenant paid $2,000 for June to the seller on June 1. The buyer owns the closing day.

1. June has 30 days. Daily rate = 2,000 / 30 = $66.6667.
2. Buyer's days: June 15 through June 30 = 16 days.
3. 16 x 2,000 / 30 = 32,000 / 30 = $1,066.67. The seller credits the buyer.
4. If the seller owned the closing day, the buyer has 15 days: 30,000 / 30 = $1,000.00.
5. Plus the $2,000 security deposit is also credited to the buyer.

3. HOA dues paid in advance. The seller paid a quarter of dues, $900, for July 1 through September 30, 2026. The sale closes Monday September 21, 2026; the buyer owns the closing day.

1. Days in the quarter: 31 + 31 + 30 = 92. Daily rate = 900 / 92 = $9.7826.
2. Buyer's days: September 21 through 30 = 10 days.
3. 10 x 900 / 92 = 9,000 / 92 = 97.826 = $97.83. The buyer pays (is debited) and the seller is credited.
4. If the seller owned the closing day, the buyer has 9 days: 8,100 / 92 = 88.04.

Notice the direction: in example 1 and 2 the seller pays the buyer; in example 3 the buyer pays the seller. Every proration is just one of those two.