California Real Estate SalespersonTransfer of PropertyEasy
An annual property tax bill of $4,800 covers the fiscal tax year of July 1 through June 30. The seller already paid the entire year's tax bill in advance. Escrow closes on May 1. Using standard proration practice, how much should the buyer reimburse the seller at closing for the prepaid taxes covering the period after closing?
- A$1,200
- B$800
- C$400
- D$2,400
Show answer & explanationAnswer & explanation
Correct answer: B. $800
The $4,800 annual tax equals $400 per month. From May 1 through June 30 (the fiscal year-end) is 2 months, so the buyer owes the seller 2 × $400 = $800 for the prepaid taxes covering the post-closing period.
Why the other options are wrong
- A. This overstates the remaining period as three months instead of two.
- C. This is only one month's worth of tax, not the full two-month remaining period.
- D. This equals half the annual tax, far more than the two months remaining.
Property Tax Proration
At closing, prepaid or unpaid property taxes are divided (prorated) between buyer and seller based on their period of ownership within the tax year.
- California's fiscal tax year runs July 1–June 30
- Seller who prepaid taxes gets reimbursed for the buyer's post-closing period
- Proration is typically calculated by escrow using a 30-day month or actual days
Memory trick: Split the tax bill by the calendar, not by who signed last.