Property taxes. We all hate them. They are the primary source of revenue for our local governments, however, and are therefore, inescapable.
Iowa handles our property taxes strangely, however, and you need to know how this works if you’re looking to buy or sell a home. In Iowa, we pay property taxes in March and September of each year. The March taxes actually pay the taxes for the property for the previous year’s first six months. For instance, your March 2019 taxes will pay for the period of January 1, 2018 – June 30, 2018. In September 2019, you will pay taxes for the period of July 1, 2018 – December 31, 2018.
If you’re not moving, this doesn’t impact you. For those who escrow taxes, this means that your lender has an escrow account set up, and you contribute monthly to this account (your monthly payment includes your taxes). Every six months, your lender will pay the taxes directly out of this escrow account. For those who don’t escrow taxes, don’t forget to pay every six months, by March 31 and September 30 every year. You can most likely pay online at www.iowatreasurers.org, for a small fee.
But if you are moving, the property tax calculation becomes important. Let’s look at the impact if you’re selling, buying an existing home, or buying a new construction home:
When you sell, you will need to give a credit to the buyers of your home for the taxes up to your closing date. Most likely, this will reduce your proceeds by 9-15 months of your property taxes.
The closing date of your sale is June 30, 2019. You’ve paid property taxes in March 2019, which covered through June 30, 2018. Your annual property tax amount is $2,400. At closing, you will owe the buyers a credit for the taxes from July 1, 2018 through June 30, 2019 (closing day). This will be a full year of property taxes, or $2,400.
Buying an Existing Home
When you purchase a home that is existing, you will receive a credit from the sellers for the taxes up to your closing date. Great news, right? But if you choose to escrow your property taxes, you will put a portion of that credit into the escrow account right at closing.
The closing date of your purchase is June 30, 2019. The annual property tax amount is $2,400. At closing, you will receive a credit for the taxes from July 1, 2018 through June 30, 2019 (closing day). This will be a full year of property taxes, or $2,400. Taxes will be due in September 2019, however, you will need to put at least three months of taxes into the prepaid escrow account, or $600.
Buying a New Construction Home
New construction is a bit different. In general, if you purchase a house that is under construction, it has not yet been assessed for a taxable value. In Iowa, properties are assessed in January every other year.
That assessment will then determine the property taxes to be paid in September of that year and March of the following year. So, you may not pay taxes for awhile after you purchase a new construction home.
The closing date of your new construction home purchase was June 30, 2018. It will be assessed in January 2019. The first tax payment will be due in September 2020, which will cover the second half of 2019. Here’s the tricky part: If you had planned to escrow your property taxes, the taxes may not kick in until after the first tax bill. So, if you’re buying new construction, you will want to save up a few months of taxes (you can get an estimated tax payment from the county ahead of time).
Make sure you’re taking property taxes into account when you’re purchasing or selling property here in Iowa. Your REALTOR® and lender can help you out, so you’re not surprised by those crazy Iowa property taxes.
1]Your REALTOR® will take property tax credits into account when calculating an estimate of proceeds.
Your lender will review the required prepaid taxes and other items prior to closing.
Review your property tax escrow plans with the lender during the closing process.