One of the items commonly adjusted at real estate closings is municipal real estate taxes. Real estate taxes are billed on a quarterly basis with a quarterly tax payment being due on the first day of the middle month of the quarter. Thus, first quarter taxes, covering January, February and March are due February 1st. Second quarter taxes, covering April, May and June are due May 1st. The due date for third quarter taxes is August 1st and fourth quarter taxes, November 1st.
The reason municipal real estate taxes are adjusted at closing, i.e., apportioned between the buyer and the seller as of the day of closing, and paid at closing is because the taxes become a lien on the property on and after the first day of January of the year for which they are assessed. N.J.S.A. 54:5-6.
Unless the sales contract provides otherwise, municipal taxes are adjusted based on the current year’s assessment. If taxes for the current year have not yet been determined at the time of closing then the amount of the taxes for the last assessed year will be used as the basis for computing the apportionment between the buyer and seller. N.J.S.A. 54:4-56.
While municipalities should have their budgets and tax rates in place by July 1st, sometimes they do not. This means that taxes are frequently adjusted based on the prior year’s taxes, even after July 1st. The 1st and 2d quarter tax bills are actually estimates for the current tax year. Once the municipality’s budget and tax rate are adopted, the full annual taxes are assessed and the 3d and 4th quarter final bills are sent out. The 3d and 4th tax quarter bills, when added to the 1st and 2d quarter estimated bills, total the full year’s taxes. Usually, the municipality sends out the estimated tax bills for the 1st and 2d quarters along with the 3d and 4th quarter final bills.
When improvements or newly constructed homes are built after the date for the regular tax assessment by the municipality, an added assessment is made and billed in October of the year in which the improvement is completed provided it is completed before July 1st. The added assessment usually commences the first full month following the issuance of a Certificate of Occupancy or Approval which is proof of the completion of the improvement. If the improvement is completed after July 1st, then the bill for the added assessment taxes for the improvement is usually sent out to the homeowner in October of the following calendar year.
Frequently, homeowners pay their real estate taxes by means of a monthly escrow payment to their mortgage company, which in turn makes the quarterly tax payments for them. As a result, many homeowners may be unaware of the method by which the municipality bills their real estate taxes.