How to record property tax proration on the closing statement of a rental purchase
The closing statement splits the year's property tax between you and the seller by days. For federal income tax, the seller is treated as paying through the day before the sale and you from the sale date. Your share is a property tax expense. Back taxes the seller owed that you agree to pay are not an expense: they go into your basis in the property.
What the proration line on the closing statement means
Property tax is billed for a tax year, but a sale happens in the middle of it. The settlement statement shows a line that splits the bill so each side pays for the days it owned the property. Depending on whether the tax was already paid, you will see either a credit to you (the seller has not paid their part yet) or a charge to you (the seller already paid the whole bill and you reimburse them for your part).
For income tax, IRS Publication 530 explains the split: the seller is treated as paying the property taxes up to but not including the date of sale, and the buyer is treated as paying from the date of sale, regardless of the lien dates under local law. That publication is written for homeowners, but the same day count is what the closing statement uses.
Two cases, two treatments
| What happened | Treatment | Source |
|---|---|---|
| You reimburse the seller for taxes the seller already paid for your part of the year | Property tax expense, not basis | Publication 551 |
| You agree to pay taxes the seller owed for the seller's part, and the seller does not reimburse you | Part of your basis, not deductible | Publication 551 and Publication 527 |
IRS Publication 551 says if you pay real estate taxes the seller owed, and the seller did not reimburse you, you treat them as part of your basis and cannot deduct them as taxes. If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount in the year of purchase and you do not add it to basis. IRS Publication 527 says the same for rental property.
A worked closing, line by line
Example a made-up rental closes on September 1. The calendar year tax is $7,300 and the seller paid it all on August 15. That is $20 a day. The buyer owns the property from September 1 to December 31, which is 122 days. The buyer's share is 122 days times $20, which is $2,440. The seller's share is 243 days times $20, which is $4,860. Check: $2,440 plus $4,860 is $7,300.
The buyer reimburses the seller $2,440 at closing. Now the entry. Suppose the price is $300,000, the loan is $240,000, and ignore other closing costs to keep the picture clear.
| Account | Debit | Credit |
|---|---|---|
| Land and building (split by the method you use) | $300,000 | |
| Property taxes | $2,440 | |
| Mortgage payable | $240,000 | |
| Checking (cash paid at closing) | $62,440 | |
| Total | $302,440 | $302,440 |
Cash at closing is the $60,000 down payment plus the $2,440 proration. Other settlement fees follow their own rules; closing costs: deductible or basis goes line by line.
If the seller has not paid and the bill is still due
Sometimes the seller has not paid at all, and the closing agent collects the seller's share from the seller's proceeds and pays the county. Then your only job is to book your own days as an expense when the tax is paid.
If the property comes with back taxes from earlier years and you agree to pay them to get the deal done, that is a different line. Treat it as part of the cost of the property, as Publication 551 describes, and add it to the amount you split between land and building using the allocation method.
Example a made-up purchase includes $3,000 of the seller's back taxes that the buyer agrees to pay. Price $300,000 plus $3,000 is a $303,000 cost to allocate. None of the $3,000 goes to property tax expense.
The other prorations on the same statement
- Rent for the month of closing: the seller usually credits the buyer for rent collected for days after closing. Book it as rental income for your days, and ask your preparer how to treat the rest.
- Tenant security deposits: the seller credits the buyer, and the buyer now owes those deposits to tenants. See security deposits when a building is sold.
- Prepaid items such as insurance or utility deposits: enter each as the line on the statement says.
The full checklist for the first month of ownership, including setting up the ledger, is in books and systems after buying an apartment building.
How DoorKeeping handles it
In DoorKeeping you can upload the settlement statement to the property's documents and ask Claude or ChatGPT to propose the closing entry from it: purchase price, loan, proration and fees on separate lines for your one-tap approval. Each property has its own LLC books, so the new building starts with its own ledger. DoorKeeping does not give tax advice, so ask your preparer which closing lines belong in basis.
Sources
- IRS, Publication 551, Basis of Assets, read Oct 30, 2026
- IRS, Publication 527, Residential Rental Property (2025), read Oct 30, 2026
- IRS, Publication 530, Tax Information for Homeowners, read Oct 30, 2026
Questions
- Is the property tax proration at closing deductible on a rental?
- Your share for the days you owned it, when you reimburse the seller, can usually be deducted as property tax. Taxes you pay that the seller owed go into basis.
- How is the day count figured?
- For federal income tax the seller is treated as paying through the day before the sale and the buyer from the sale date, whatever the local lien dates are.
- Where do I find the proration numbers?
- On the settlement or closing statement, in the property tax lines, and on the closing agent's worksheet.