Real estate tax season for 2017 has come and gone. Don’t let the tax bill for 2017 ruin your 2018 closings.
In South Carolina, an owner-occupant pays taxes at a 4% rate whereas an investor or non-occupant owner pays taxes at a 6% rate and does not get any education tax relief. The difference in taxes could be as much as threefold.
If you are a real estate agent in the Midlands using the Central Carolina Realtors Association (CCRA) contract note that the contract holds that taxes will be prorated based on the last tax bill of record and that all tax prorations are final. Thus, if the seller was taxed at 6% in 2017 and sells the property in 2018 the tax proration will be based on the 6% rate shown in the last tax bill even if the buyer intends to occupy the house as a primary residence. The time to negotiate a different method of proration is during contract negotiations, not after the settlement statement is created. Amending the contract just prior to settlement could affect the buyer’s ability to close or could require a lender to redisclose, which could cause delays.
If you are in the Upstate and use the South Carolina Association of Realtors contract, the proration provision holds that the attorney is to prorate based on the best information available. Considering the counties’ tax estimators typically state that the information is “not deemed reliable” I am unsure how a closing attorney could use anything other than the previous year’s tax bill. Additionally, prorations are not final under this contract, which opens a slew of post-closing issues such as your client looking to you to make the other party re-prorate after the tax bill is issued. Of course, neither you nor the closing attorney have the power to make anyone abide by that provision, which is why the CCRA contract eliminated it.
As such, a real estate agent should always pull a copy of the previous year’s tax bill and prepare your net sheet for the buyer or seller based on that bill. Never tell your client that if the taxes go down that the other party will reimburse them the difference. Prorations are final in the Midlands and in the Upstate you have no way to enforce the provision. When you make promises you cannot enforce you may end up paying the difference if the other party refuses. Remember per state law an agent cannot make a false promise that is likely to influence their client. Pulling the tax bill at the time the contract is formed should eliminate any last minute surprises that can turn a deal sour.
Another Great South Carolinian. I like to highlight interesting people from South Carolina. Last month Cpl. William Kyle Carpenter graduated from the University of South Carolina. Cpl. Carpenter was awarded the Congressional Medal of Honor on June 19, 2014 for his actions in Marjah, Helmand Province Afghanistan. According to the Official Citation, Cpl. Carpenter “was manning a rooftop security position when an enemy hand grenade landed inside their sandbagged position. Without hesitation and with complete disregard for his own safety, Cpl. Carpenter moved toward the grenade in an attempt to shield his fellow Marine from the deadly blast. When the grenade detonated, his body absorbed the brunt of the blast, severely wounding him.” Cpl. Carpenter was willing to give his life so that a fellow Marine could live. I have seen Cpl. Carpenter speak and he has always maintained that he is not a hero. I have to disagree with him. There is no doubt Cpl. William Kyle Carpenter is a true American Hero and deserves all the accolades bestowed upon him.