On the 15th of April it seems fitting to talk about taxes, but this is a real estate blog, so let’s discuss property taxes. In Minnesota property taxes can be paid by the property owner themselves, but it is more common for the taxes to be paid from an escrow account set up by the lender holding the mortgage note on the property. The escrow account is fed every month when the payment is made; the money that collects in escrow is used to pay property taxes and homeowners insurance. When taxes and insurance are paid through an escrow account it all happens automatically for the property owner. Regardless of how the property taxes are paid, they are paid in 2 semi-annual installments. The first payment covers the first half of the year, January 1 through June 30. The second payment covers the second half of the year, July 1 through December 31. What gets confusing is that Minnesota collects the payments on May 15 and October 15. So, your May 15th payment covers taxes that you already owe, from January 1 through May 15, as well as taxes that are coming due, from May 15th through June 30. The October 15 payment works the same way. You can read the entire instruction and detail here;

http://www.taxes.state.mn.us/taxes/property_tax_administrators/other_supporting_content/pts08_instructions.pdf

In the typical residential real estate transaction in Minnesota the property taxes for the property will be pro-rated from the day of closing. What this means is that the seller will pay the taxes up until the sale closes and the buyer will pay the taxes from closing forward. If for instance, the closing happened on May 1 the seller would be responsible for the taxes from January 1 through May 1, but they would not have paid any of those taxes yet, not until May 15, and so this would be charged to the seller at the time of closing. If the closing happened on May 30 the seller would be responsible for the taxes from January 1 through May 30, but this time they have paid those taxes, on May 15, and they have also already paid the taxes through June 30. The amount of future taxes that the seller has paid in advance will be credited back to the seller at the closing, as these taxes are now the responsibility of the new owner. It’s the job of the closing company to figure out the pro-rations and enter the amount on a balance sheet for the transaction, called a HUD-1 form.