Let’s say my friend Cooper is under contract to sell his house to RJ (perhaps because Cooper has a new job in Charlotte while RJ never wants to leave North Carolina ).   

If the closing occurs on June 30, 2025, how should Cooper and RJ allocate property taxes on the house between seller and buyer?

Assume Cooper has already paid the 2024 taxes on the house.  Those taxes are levied for the fiscal year from July 1, 2024, to June 30, 2025. How do we know that?  Well, we know that property taxes are levied as part of a local government’s annual budget ordinance. GS 159-13  And we know that the annual budget ordinance must cover the 12-month fiscal year from July to June.  GS 159-8  In other words, the tax year is the same as the July-to-June fiscal year.

If Cooper and RJ were to allocate property taxes based on how those taxes are actually levied for the fiscal year, there would be no need for any payments between them. Cooper paid the taxes through the date of sale, June 30, 2025.  RJ starts his ownership at the start of the new tax/fiscal year, on July 1, 2025. They would be even when it comes to property taxes.

But most North Carolina buyers and sellers do not allocate property taxes on a fiscal-year basis.  They allocate those taxes on a calendar-year basis, January 1 to December 31.  Why?

Primarily because of GS 39-60, a short and sweet statute that reads, “Unless otherwise provided by contract, property taxes on the real property being sold shall be prorated between the seller and buyer of the real property on a calendar‑year basis.”

Note this law does not require property taxes be allocated on a calendar-year basis; it simply sets that allocation as the default. 

The standard “offer to purchase and contract” used by realtors, buyers, and sellers in North Carolina reflects GS 39-60.  Section 10 (of the 2024 version) states that property taxes will be allocated between buyer and seller on a calendar-year basis.

Based on discussions with attorneys and realtors, very few residential buyers or sellers exercise their authority under GS 39-60 to amend the standard contract so that property taxes are allocated on a fiscal-year basis. As a result, nearly all residential sales in North Carolina allocate property taxes on a calendar-year basis. 

Let’s assume that Cooper and RJ use the standard offer to purchase and contract, meaning that property taxes are allocated on a calendar-year basis. The 2024 taxes that Cooper paid are assumed to cover the period from January 2024 to December 2024 (even though they actually cover the period from July 2024 to June 2025).  The yet-to-be-paid 2025 taxes are assumed to cover the period from January 2025 to December 2025 (even though they actually cover the period July 2025 to June 2026).

Under a calendar-year allocation, Cooper will be responsible for half of the 2025 tax bill (January to June 2025).  The closing attorney will contact the city and county to obtain the estimated 2025 tax amounts.  They will then reduce the amount RJ owes at closing by one-half of those property tax bills that RJ will receive later in 2025.

The result is not great for Cooper. He winds up paying taxes twice for the six-month period from January 2025 to June 2025.  The first time was when he paid the 2024 property tax bill that covered the period July 2024 to June 2025.  The second time is when RJ reduces the amount he pays Cooper at closing to account for the allocation of half of the 2025 property taxes (January to June) to Cooper.

The seller usually gets the short end of the stick under a calendar-year allocation.  The Cooper/RJ example illustrates what happens when the sale occurs in the first half of the calendar year.  But sellers also get penalized when sales occur toward the end of the calendar year. 

Assume a sale closes on December 31, 2025 and the seller has already paid the 2025 taxes that cover the period from July 2025 to June 2026. Under a calendar-year allocation, the buyer will not be obligated to reimburse the seller for any portion of the 2025 taxes because it is assumed for closing purposes that those taxes cover the period January 2025 to December 2025. The seller winds up paying six months of property taxes for the buyer.

I suppose this all evens out, given that most of us will be both buyers and sellers of real estate at some point.  But the disconnect between the customary calendar-year tax allocation for residential property sales and the reality of the fiscal year levy of property taxes definitely causes confusion. I’ve had several calls from sellers who were both confused and annoyed by this situation.

Sellers are of course free to propose modifications to the standard offer to purchase so that taxes are allocated on a fiscal-year basis instead of a calendar-year basis. But very few do so, either because they don’t know how taxes are actually levied or because they don’t want to risk losing the buyer. My advice to sellers: if this issue is important to you, make sure to raise it with your agent early in the process.

One final note: the allocation of property taxes between buyer and seller in their sales contract has NO effect on a local government’s authority to collect those taxes.  Under GS 105-365.1, the owner on the date of delinquency (January 6) and all subsequent owners are personally responsible for delinquent taxes on real property.  That responsibility cannot be altered by the terms of a sales contract. Nor will the tax collector prorate a bill between buyer and seller.  See this blog post for more details.

For example, assume I sell you my house in December 2025. As part of the sales negotiation, I promise to pay the 2025 taxes in full prior to closing. If I fail to pay those taxes and they become delinquent in January 2026, the tax collector will hold you personally responsible for those taxes because you were the owner on the date of delinquency.  The tax collector will have no authority to hold me responsible for those taxes.  You might have a breach of contract claim against me based on my promise to pay the 2025 taxes, but that private cause of action has no bearing on the tax collector’s authority under GS 105-365.1.