tax question related to closing costs

we have to pay back the seller for taxes she's already paid for this year.

then we have to pay future taxes to fund our escrow account?

Isn't this paying twice for the same thing?

We are closing tomorrow and I'm still waiting for the final closing costs from the bank, but I'm just trying to understand this.

Does anyone know how this works?

Re: tax question related to closing costs

It is my understanding that these costs should have been given to you by your mortgage broker as part of the good faith estimate. It would be considered the pre-paids. At the time, the bank does not know what the seller has paid in taxes yet, but they do know how much they will take to put into escrow.

For example: if you were quoted as the pre-paids being $10,000, of that the seller might take $5,000 for what they aready paid, and the remaining $5,000 goes into an escrow account.

Of course, I could be totally wrong, in which case for when my closing date comes.

Re: tax question related to closing costs

I hope you're right too!

Re: tax question related to closing costs

The bank escrow is likely going to want a set amount deposited regardless of what taxes get paid at closing. I'd bet you would be double paying in your example. Doesn't really matter though, it's just prepaid reserves and it's your money so you get whatever is in the escrow back when you eventually sell. However it's reasons like this which is why I never escrow.

tax question related to closing costs

For us, we closed May 30th. We did not owe the seller any taxes as our tax payments are done in six month intervals which ended on May 30th. We did though have to pay the next six months in full into the escrow account. It should all be listed on your closing paperwork.

Re: tax question related to closing costs

Thanks for the responses. We have our GFE but still have not received the final numbers of what we'll owe tomorrow at the closing table.

Looks like we'll have to pay back the seller for the 5k that she already pre-paid. Plus we'll have to fund the escrow account. So more than we thought but it is what it is!

Re: tax question related to closing costs

Yeah, it's two separate issues, so one doesn't offset the other.

When the seller paid her last tax bill, she paid for part of the period of time you will now be owning the home. So you have to refund her back. But if the house is in Nassau, I know one of the taxes (school taxes, I believe) are paid retroactively, so when you pay, you will be covering part of the period she owned the home (so you would get an adjustment in your favor at closing to offset that). But that piece of it is basically adjustments the attorneys make at closing between the parties.

The escrow piece of it is what your bank requires. And as others have said, you always have to pad the escrow a little bit (they don't just take the exact amount they need, the bank always wants a cushion).

But yes, definitely make sure you understand everything fully. I am sure your attorney will walk you though.

And good luck with the closing!

Re: tax question related to closing costs

Thanks for all of the responses. I just received all the final numbers for the closing tomorrow. The bank still takes money for the escrow account but its not as much as I was anticipating so we're all good.

Thanks again!

Re: tax question related to closing costs

Posted by Century 21 Dallow - Christine Braun

Yeah, it's two separate issues, so one doesn't offset the other.

When the seller paid her last tax bill, she paid for part of the period of time you will now be owning the home. So you have to refund her back. But if the house is in Nassau, I know one of the taxes (school taxes, I believe) are paid retroactively, so when you pay, you will be covering part of the period she owned the home (so you would get an adjustment in your favor at closing to offset that). But that piece of it is basically adjustments the attorneys make at closing between the parties.

The escrow piece of it is what your bank requires. And as others have said, you always have to pad the escrow a little bit (they don't just take the exact amount they need, the bank always wants a cushion).

But yes, definitely make sure you understand everything fully. I am sure your attorney will walk you though.

And good luck with the closing!

Re: tax question related to closing costs

As previous poster mentioned, usually if you pay 20% down, then you do not have to do Escrows. From my, and friends, experience this fact is rather not advertised by banks and mortgage brokers. However, if you ask it turns out to be possible :). I guess it is little more hassle later as you need to pay taxes on your own, but 5K or so less locked by your bank. To each their own.