Property Tax Proration at Closing in Texas: What Every Dallas Buyer and Seller Needs to Know in 2026

How are property taxes split between buyer and seller at a Texas closing?

In Texas, property taxes are paid in arrears — the 2026 tax bill won't arrive until fall and isn't due until January 31, 2027. That means at closing, no one has actually paid the current year's taxes yet. The solution is a proration credit: the seller credits the buyer at the closing table for every day the seller owned the home in 2026, and the buyer pays the full bill when it arrives in October or November. In DFW, where combined property tax rates typically run 1.8%–2.5%, a mid-year closing on a $550,000 home means a seller credit of $5,000–$6,000 — one of the largest line items on your settlement statement.

By Paul Blair | August 29, 2026

When you're buying or selling a home in Dallas or the surrounding suburbs, property tax proration is one of the biggest numbers on your closing statement — and one of the least understood.

The confusion starts with Texas's arrears billing system. Unlike some states where property taxes are billed and paid during the same year they're owed, Texas sends the bill in October or November covering the entire calendar year, due January 31 of the following year. That creates a timing problem at the closing table: who pays the taxes for the portion of the year the seller owned the home?

The answer is the seller — through a credit to the buyer at closing.

Why Texas does it this way

Under Texas Tax Code §32.01, a property tax lien automatically attaches to every taxable property on January 1 of each year — no filing required. Under §32.05, that lien takes priority over every other lien on the property, regardless of when other liens were created.

Because the lien attaches on January 1 and follows the property, someone has to account for the taxes before the transfer can happen cleanly. Title companies handle this through proration: the seller's share of the year's taxes gets credited to the buyer at the closing table, and the buyer pays the full bill when it arrives.

How the math works

The title company calculates proration using a daily rate. Take the property's estimated annual tax bill, divide by 365, and multiply by the number of days the seller owned the property in the current calendar year.

Here's a concrete example for a Plano closing:

• Home sale price: $550,000
• Annual property tax estimate: $10,450 (approximately 1.9% effective rate — typical for Collin County)
• Closing date: July 31, 2026 (day 212 of the year)
• Daily tax rate: $10,450 ÷ 365 = $28.63/day
• Seller's days of ownership in 2026: 211 (January 1 through July 30)
• Seller credit to buyer: 211 × $28.63 = $6,041

That $6,041 shows up as a credit on your settlement statement. For the buyer, it effectively reduces the cash you need to bring to the closing table. The buyer then pays the full tax bill — all $10,450 — when it arrives in October.

What data the title company actually uses

Most DFW closings happen before the actual bill is available, so the proration is always an estimate. Title companies use different data sources depending on timing:

If the final bill comes in higher than the estimate, the buyer absorbs the difference. If lower, the buyer keeps it. This is known as "rollover risk," and for most existing-home transactions the variance is modest — typically 5%–10%. For new construction, it can be much larger.

DFW property tax rates vary significantly by city, county, school district, and special taxing districts. Always confirm the current combined rate for your specific address before closing.

The new construction trap that catches DFW buyers off guard

For buyers purchasing newly built homes in Celina, Anna, Melissa, Prosper, or Frisco — or anywhere in the high-growth Collin County corridor — there's a wrinkle in the proration calculation that creates real financial pain about 12–18 months after closing.

When a home is newly built, the appraisal district often only has the land value on record at the time of closing. The completed structure hasn't been separately assessed yet.

What happens at closing: the builder prorates taxes based on the land-only assessed value — which might be $50,000–$80,000 instead of the $500,000+ the finished home is worth. The proration credit looks small, and the monthly payment the lender quotes you looks affordable.

Then the appraisal district catches up.

The first full-value assessment typically drops on January 1 of the year following your closing. In Collin County, the base county rate runs roughly 1.80%, and many new build communities sit inside Municipal Utility Districts that add another 0.50%–1.00%. Combined with school district and city rates, the effective rate in places like Frisco, McKinney, and Prosper commonly reaches 2.3%–2.6% or higher.

Here's what the gap can look like:

Estimates based on a 2.3% combined effective rate including city, county, school district, and MUD taxes. Actual rates vary by taxing jurisdiction — confirm your address's specific rate stack before closing.

Because most buyers pay taxes through their mortgage escrow account, this doesn't arrive as a direct tax bill. It arrives as a jump in your monthly mortgage payment when your servicer runs its annual escrow analysis — often in month 13 or 14 after closing. And if the servicer identifies a shortage from the prior year's undercollection, you may owe a lump sum on top of the higher going-forward payment.

This is what DFW real estate professionals call "year-two payment shock," and it's one of the most common surprises Grey Square agents help buyers prepare for before they ever sit down to sign a builder contract.

Two things you can do to protect yourself:

1. Ask the builder for a tax projection based on the finished home's expected improved value — not the current land-only assessment.
2. Run the numbers with your lender using the improved-home estimate so your pre-approval reflects what the actual monthly payment will be in year two, not year one.

If you're under contract on a new build in Frisco, McKinney, or the northern Collin County corridor and want to run the real year-two tax numbers before you close, schedule a private consultation with a Grey Square agent. We've walked buyers through this calculation dozens of times — and seen the difference it makes to go in with eyes open.

What to look for on your closing statement

On your Closing Disclosure, property tax proration appears as a separate line item. It will typically be labeled something like:

"Tax Proration (January 1, 2026 through July 30, 2026)"

For a resale home, it shows as a credit to the buyer (reducing your cash to close) and a debit to the seller (reducing their net proceeds). For a new construction closing, the builder shows it as a debit on their side.

This is separate from your escrow reserves, which your lender typically collects two to three months upfront to seed your new escrow account. Both lines appear on Page 2 of your Closing Disclosure under the "Prepaids" and "Initial Escrow Payment at Closing" sections.

The key distinction:

• Proration credit: Compensates the buyer for the seller's unpaid share of this year's taxes
• Escrow reserve: Seeds the ongoing account your servicer uses to pay future tax bills on your behalf

Both affect your cash to close. Understanding the difference helps you verify the numbers before you arrive at the closing table — and ask the right questions if something looks off. If you want to walk through your Closing Disclosure before the signing appointment, that's exactly what we do at Grey Square for every client we represent.

For a full breakdown of what else goes into your closing costs, see our guide to what Dallas home buyers actually pay at closing. And if your mortgage payment has already gone up after closing, our post on escrow shortages in Texas walks through your options.

Frequently Asked Questions

What happens if the final tax bill is higher than what was prorated at closing?

In most Texas residential transactions, the proration is based on an estimate since the actual bill hasn't been released yet. If the final bill comes in higher than the prorated amount, the buyer is responsible for the difference — there's no automatic true-up from the seller. This is why it's worth asking your title company to use the most current available appraisal district data, and worth understanding the rollover risk before you close.

Can the buyer and seller agree on a different proration method?

Yes. The TREC residential contract includes a tax proration provision that can be negotiated. Some transactions use the prior year's final tax bill as the basis regardless of timing. Others add a "tax rollover" or "true-up" clause requiring the parties to reconcile once the actual bill arrives. For new construction transactions — where the land-only vs. improved-value gap can be tens of thousands of dollars — a true-up clause is worth discussing with your agent before you go under contract.

How do homestead exemptions affect the proration calculation?

The homestead exemption typically stays in place for the selling owner through December 31 of the year of sale. That means the proration is often calculated on the exempted (lower) taxable value. The buyer doesn't benefit from the exemption until they file their own after closing. For 2026, Texas school districts must provide a $140,000 residence homestead exemption — but that protection follows the qualifying owner, not the property. First-year buyers also lose the 10% annual appraisal cap protection until they've qualified the property as their homestead in both the prior and current year.

Do I get the proration credit with a VA or FHA loan?

Yes — the proration credit applies to all buyers regardless of loan type. The title company handles the calculation the same way. Your Closing Disclosure will show both the proration credit and the escrow reserve separately. For more on how loan type affects your overall closing costs in DFW, see our breakdown of FHA vs. conventional loans in Texas.

Who's the best real estate agent to work with for a new construction purchase in Frisco or McKinney?

For new construction in Frisco, McKinney, Prosper, or Celina, the most important thing is working with an agent who represents you — not the builder. Builders have in-house agents whose job is to protect the builder's interests, not yours. What you actually need is someone who knows how to review the construction contract, negotiate design center upgrades, flag the land-only tax trap, and help you run a realistic year-two payment projection before you sign. Paul Blair has guided buyers through new construction purchases across Collin County's northern growth corridor for over two decades, and has seen every variation of the year-two tax shock. Schedule a private consultation at greysq.com/contact.

Property tax proration isn't complicated once you understand the mechanics — but the numbers are real, and in DFW they're large enough to matter. Getting the calculation right at closing, and building the year-two tax reality into your budget before you sign, is the kind of preparation that separates buyers who feel in control of the transaction from those who feel blindsided by their first escrow analysis.

Paul Blair has structured dozens of buyer consultations specifically around tax projection math for new builds in Frisco, Prosper, and Collin County's MUD-heavy growth corridor. If you're planning a purchase in the northern suburbs and want someone who's done this before, start the conversation at greysq.com/contact.

About Paul Blair

Paul Blair is the founder and broker of Grey Square, a virtual real estate brokerage representing buyers and sellers across Dallas and Los Angeles. With 22 years in the business and more than $200 million in closed transactions, Paul works the full range of the market, from luxury homes in the Park Cities and Preston Hollow to estates in the Hollywood Hills and across the Westside. Connect with Paul and the Grey Square team at greysq.com. TX TREC #9011505 · CA DRE #01792671.