Prorating taxes between buyer and seller involves dividing the property taxes for a given period — usually the year of sale — between the two parties based on their respective ownership periods. The logic is straightforward: the seller owned the property for part of the year and should carry the tax burden for those months, while the buyer takes responsibility from the closing date forward.
What makes this more complicated in Colorado than it first appears is that property taxes here are paid in arrears. A tax bill that arrives in January covers the prior calendar year, which means that at the moment of closing, the taxes attributable to the seller's ownership period almost certainly haven't been billed yet, let alone paid. Rather than leave the buyer holding a bill for months they didn't own the home, the closing statement credits the buyer for the seller's share, and the buyer pays the full bill when it comes due.
That credit has to be calculated from something, and this is where the two parties have a decision to make. In the standard Contract to Buy and Sell Real Estate used by Colorado real estate brokers, the parties can elect one of two methods for prorating property taxes. One method is to prorate based on the previous calendar year tax bill. The other is to prorate on the most recent mill levy and property assessment. The election is made in the contract itself, not at the closing table, and the difference between the two can amount to hundreds or even thousands of dollars depending on the property and the timing.
One method is to prorate based on the previous calendar year tax bill.
The other is to prorate on the most recent mill levy and property assessment.
Method #1
When using the previous calendar year’s taxes to prorate, the taxes are calculated based on the total amount of taxes paid for the previous year, regardless of any changes in the property’s value or mill levy rate. The title company takes a known, documented number — the actual bill from the county treasurer — divides it across the days or months of the year, and allocates it between the parties according to the closing date.
The appeal here is certainty. Everyone involved is working from a figure that already exists on paper and can be verified in minutes. There's no estimating, no assumptions about what a taxing authority might do, and no dispute over methodology. For that reason, this method is often used when the current year's taxes have not been assessed yet, which describes the majority of closings that occur before the county completes its work for the year.
The tradeoff is that a prior-year bill is a historical document. If the property was reassessed upward, if a new special district began levying, or if voters approved a mill levy increase, none of that appears in last year's number. The proration will be accurate to the past and potentially quite wrong about the present.
The appeal here is certainty. Everyone involved is working from a figure that already exists on paper and can be verified in minutes. There's no estimating, no assumptions about what a taxing authority might do, and no dispute over methodology. For that reason, this method is often used when the current year's taxes have not been assessed yet, which describes the majority of closings that occur before the county completes its work for the year.
The tradeoff is that a prior-year bill is a historical document. If the property was reassessed upward, if a new special district began levying, or if voters approved a mill levy increase, none of that appears in last year's number. The proration will be accurate to the past and potentially quite wrong about the present.
Method #2
On the other hand, using the most recent mill levy and assessment to prorate takes into account any changes in the property's value and the tax rate for the current year. This method considers the assessed value of the property and the mill levy rate in the current year to calculate the tax amount.
The calculation itself follows the same path the county treasurer will eventually take. The assessor establishes an actual value for the property, that value is multiplied by the applicable assessment rate to produce an assessed value, and the assessed value is multiplied by the total mill levy for every taxing authority with jurisdiction over the parcel. That levy is rarely a single number — it's the sum of the county, the school district, the municipality or fire district, and, in newer subdivisions, a metropolitan district that may add substantially to the total.
Timing matters a great deal to this method. Colorado assessors reappraise real property in odd-numbered years, and notices of valuation typically go out to owners in early May. Mill levies, meanwhile, are certified by the taxing authorities in December. That means the "most recent" mill levy and the "most recent" assessment may come from different points in the cycle, and a closing in March is working with a very different information set than a closing in October.
The calculation itself follows the same path the county treasurer will eventually take. The assessor establishes an actual value for the property, that value is multiplied by the applicable assessment rate to produce an assessed value, and the assessed value is multiplied by the total mill levy for every taxing authority with jurisdiction over the parcel. That levy is rarely a single number — it's the sum of the county, the school district, the municipality or fire district, and, in newer subdivisions, a metropolitan district that may add substantially to the total.
Timing matters a great deal to this method. Colorado assessors reappraise real property in odd-numbered years, and notices of valuation typically go out to owners in early May. Mill levies, meanwhile, are certified by the taxing authorities in December. That means the "most recent" mill levy and the "most recent" assessment may come from different points in the cycle, and a closing in March is working with a very different information set than a closing in October.
So, What's the Difference?
In essence, the difference between prorating taxes based on the previous calendar year's taxes and the most recent mill levy and assessment is the inclusion or exclusion of changes in the property's value and the tax rate for the current year.
Method #1 looks backward at what was actually billed. Method #2 looks forward at what will likely be billed. In a flat market with stable levies, the two produce nearly identical results and the election hardly matters. In a market where values have moved sharply, or in a jurisdiction where a new district has come online or a bond issue has passed, the gap between them widens considerably — and one party benefits from that gap while the other absorbs it.
Colorado has added another layer to this in recent years. The residential assessment rate has been adjusted repeatedly by the legislature, which means the relationship between a home's market value and its taxable value has been a moving target rather than a fixed multiplier. A property can rise in market value while its assessed value moves differently, or vice versa. That volatility is precisely what Method #1 screens out and Method #2 captures.
Method #1 looks backward at what was actually billed. Method #2 looks forward at what will likely be billed. In a flat market with stable levies, the two produce nearly identical results and the election hardly matters. In a market where values have moved sharply, or in a jurisdiction where a new district has come online or a bond issue has passed, the gap between them widens considerably — and one party benefits from that gap while the other absorbs it.
Colorado has added another layer to this in recent years. The residential assessment rate has been adjusted repeatedly by the legislature, which means the relationship between a home's market value and its taxable value has been a moving target rather than a fixed multiplier. A property can rise in market value while its assessed value moves differently, or vice versa. That volatility is precisely what Method #1 screens out and Method #2 captures.
The Most Accurate Calculation
The latter method usually provides a more accurate calculation of the tax amount for the period being prorated, especially if there have been significant changes in the property's assessed value or the tax rate for the current year.
In such cases, using the most recent mill levy and assessment to prorate would provide a more accurate calculation of the tax amount, which could result in a fairer distribution of the tax burden between the buyer and the seller. Each party pays for the period they actually owned the property, measured against the rates and values that actually apply to that period, rather than against a prior year's circumstances that no longer reflect reality.
Accuracy and advantage aren't the same thing, though, and it's worth being clear about that distinction. The more accurate method is not automatically the better method for a given client. It is simply the one more likely to match the bill that eventually arrives. Whether that outcome favors the buyer or the seller depends entirely on the direction values and levies have moved. Brokers advising on this election are making a judgment about likely tax movement, not just about precision.
It's also worth noting that most residential prorations in Colorado are final at closing. Unless the contract specifically provides for a later true-up, neither party gets a second look once the actual bill arrives and reveals that the estimate was high or low. That finality is a large part of why the election deserves attention when the contract is being written rather than when the closing statement is being reviewed.
In such cases, using the most recent mill levy and assessment to prorate would provide a more accurate calculation of the tax amount, which could result in a fairer distribution of the tax burden between the buyer and the seller. Each party pays for the period they actually owned the property, measured against the rates and values that actually apply to that period, rather than against a prior year's circumstances that no longer reflect reality.
Accuracy and advantage aren't the same thing, though, and it's worth being clear about that distinction. The more accurate method is not automatically the better method for a given client. It is simply the one more likely to match the bill that eventually arrives. Whether that outcome favors the buyer or the seller depends entirely on the direction values and levies have moved. Brokers advising on this election are making a judgment about likely tax movement, not just about precision.
It's also worth noting that most residential prorations in Colorado are final at closing. Unless the contract specifically provides for a later true-up, neither party gets a second look once the actual bill arrives and reveals that the estimate was high or low. That finality is a large part of why the election deserves attention when the contract is being written rather than when the closing statement is being reviewed.
The Buyer's Perspective
A buyer might want to use the previous calendar year method of proration when the current year's property taxes have not been assessed yet or when there has been no significant change in the property's assessed value or the mill levy rate for the current year. In such cases, using the previous year's taxes provides a reasonable estimate of the tax amount to be prorated, based on the assumption that the tax rate and assessed value will remain similar to the previous year.
Where a buyer's interests diverge is in a rising market. If the property has been reappraised at a higher value, or if the total mill levy has climbed, the buyer who accepted a prior-year proration receives a credit calculated on the old, lower figure — and then pays the new, higher bill in full when it comes due. The shortfall lands entirely on the buyer, and it lands months after closing when the transaction is long finished.
This deserves particular attention in newer subdivisions along the Front Range, where metropolitan districts finance infrastructure through mill levies that can rival or exceed the combined levies of every other taxing authority on the parcel. A buyer purchasing in a district that recently issued debt or increased its levy has good reason to prefer the current mill levy and assessment, since the prior year's bill may substantially understate what's coming. Reviewing the tax certificate and understanding which districts encumber the property is a worthwhile exercise before the proration method is elected.
Where a buyer's interests diverge is in a rising market. If the property has been reappraised at a higher value, or if the total mill levy has climbed, the buyer who accepted a prior-year proration receives a credit calculated on the old, lower figure — and then pays the new, higher bill in full when it comes due. The shortfall lands entirely on the buyer, and it lands months after closing when the transaction is long finished.
This deserves particular attention in newer subdivisions along the Front Range, where metropolitan districts finance infrastructure through mill levies that can rival or exceed the combined levies of every other taxing authority on the parcel. A buyer purchasing in a district that recently issued debt or increased its levy has good reason to prefer the current mill levy and assessment, since the prior year's bill may substantially understate what's coming. Reviewing the tax certificate and understanding which districts encumber the property is a worthwhile exercise before the proration method is elected.
The Seller's Perspective
A seller might want to use the previous calendar year method of proration when the current year's property taxes have not been assessed yet, or when there has been no significant change in the property's assessed value or the mill levy rate for the current year. This method can provide a simple and easy way to estimate the prorated taxes, based on readily available information from the previous year.
Using the previous calendar year method can also be advantageous for the seller if the property has undergone a significant increase in value or if the tax rate for the current year is substantially higher than the previous year. In such cases, using the most recent mill levy and assessment to prorate would result in a higher tax amount to be paid by the seller, which could reduce the seller's net proceeds from the sale.
The reverse holds as well, and sellers sometimes overlook it. In a declining market, or following a reduction in the assessment rate or a retired mill levy, the prior year's bill may overstate the current tax burden — and a seller who defaults to Method #1 out of habit ends up crediting the buyer more than the actual obligation warrants. A seller who has recently improved the property faces a related question, since a substantial addition or remodel will eventually show up in the assessed value even if it hasn't yet appeared on a bill.
For sellers in this position, the practical step is to compare the two calculations before the contract is finalized rather than after. The numbers needed are public — the prior year's tax bill from the county treasurer and the current notice of valuation and certified levies from the assessor — and running both methods takes very little time relative to the dollars at stake.
Using the previous calendar year method can also be advantageous for the seller if the property has undergone a significant increase in value or if the tax rate for the current year is substantially higher than the previous year. In such cases, using the most recent mill levy and assessment to prorate would result in a higher tax amount to be paid by the seller, which could reduce the seller's net proceeds from the sale.
The reverse holds as well, and sellers sometimes overlook it. In a declining market, or following a reduction in the assessment rate or a retired mill levy, the prior year's bill may overstate the current tax burden — and a seller who defaults to Method #1 out of habit ends up crediting the buyer more than the actual obligation warrants. A seller who has recently improved the property faces a related question, since a substantial addition or remodel will eventually show up in the assessed value even if it hasn't yet appeared on a bill.
For sellers in this position, the practical step is to compare the two calculations before the contract is finalized rather than after. The numbers needed are public — the prior year's tax bill from the county treasurer and the current notice of valuation and certified levies from the assessor — and running both methods takes very little time relative to the dollars at stake.
Working Through Your Proration with First Alliance Title
Tax proration is one of those closing details that rarely gets attention until the numbers land on the settlement statement — and by then, the method has already been locked in by the contract.
At First Alliance Title, we work through these calculations every day across Denver, Boulder, Colorado Springs, the Denver Tech Center, and our mountain markets in Aspen and Vail, where metropolitan district levies and shifting assessments can make the difference between the two methods especially meaningful.
If you're a broker weighing which election serves your client, or a buyer or seller trying to understand what a credit on your closing statement actually represents, our escrow teams are glad to walk through the math with you before the contract is signed rather than after. Reach out to the office nearest you or send your contract to [email protected], and we'll help you close with clarity.
At First Alliance Title, we work through these calculations every day across Denver, Boulder, Colorado Springs, the Denver Tech Center, and our mountain markets in Aspen and Vail, where metropolitan district levies and shifting assessments can make the difference between the two methods especially meaningful.
If you're a broker weighing which election serves your client, or a buyer or seller trying to understand what a credit on your closing statement actually represents, our escrow teams are glad to walk through the math with you before the contract is signed rather than after. Reach out to the office nearest you or send your contract to [email protected], and we'll help you close with clarity.
