What do you mean I have to pay more at closing? Tax adjustment explained to avoid surprise at closing table!

If you are purchasing a home between April 1-July 1, you may have to come to your closing with more funds than you additionally planned. Why? It is known as the tax adjustment (prebate tax). Previously, all Education property tax was voted on through the school budget and the taxes were collected. In the year 2000, a challenge was taken to the Supreme Court where advocates were stating that all children deserve equal education despite the amount of wealth that the school district has within its community. As a result of this case, the money is now collected from all towns and the State redistributes the money to the towns equally.

The prebate program was created as a tax adjustment based on one's income. If you net $97,000 or less (maxi um household income) you may qualify for this tax adjustment. Initially, the tax adjustment money was sent back to the owner of the home. However, about 2 years ago, the State stopped sending the money to the owner of the home and instead sends it to the town. The town then applies it as a credit to the owner's tax bill. When it is time to sell, that money "should" go back to the seller.

Most of the year, we are able to know what this amount is going to be and it should be communicated to you by your realtor or attorney so that you can plan for this before your closing. However, if you are purchasing a home between April 1-July 1, we often are not aware of what this amount is going to be as the state typically sends out the letters on July 1. If there has been a significant change in a seller's income level this amount is difficult to know and some attorneys have seen this tax adjustment as high as $8,000! That can be a lot of money for a purchaser to have to come up with/reimburse a seller when they are purchasing a home. Regardless of the amount, nobody enjoys last minute surprises at the closing table!

As always, you really should have a realtor working with you to help you negotiate and plan for these issues so that you can purchase/sell your home through a smooth and successful transaction. Please contact me at mbedard@hickokandboardman.com with any questions you may have.