National Real Estate Exam (PSI)Transfer of TitleMedium
A home's annual property taxes are $3,650, paid in arrears (not yet paid for the current year). Closing takes place on March 21, and the seller is responsible for taxes through the day of closing. Using a 365-day year, how much should be credited to the buyer at closing for tax proration?
- A$750
- B$850
- C$800
- D$700
Show answer & explanationAnswer & explanation
Correct answer: C. $800
Daily tax rate = $3,650 ÷ 365 = $10/day. Days from Jan 1 through March 21 = 31 + 28 + 21 = 80 days. Seller's share = 80 × $10 = $800. Since taxes are unpaid (in arrears), this amount is credited to the buyer and debited to the seller at closing.
Why the other options are wrong
- A. This is close but does not match the correct 80-day count.
- B. This overcounts the days, exceeding the seller's actual liability.
- D. This undercounts the days owed by the seller.
Property Tax Proration (Arrears)
When taxes are unpaid at closing, the seller's share of taxes owed for time they owned the property is credited to the buyer and debited from the seller.
- Daily rate = annual tax ÷ 365 (or 360, per local custom)
- Seller typically owes through day of closing
- Result is a buyer credit / seller debit at settlement
Memory trick: Arrears taxes: seller pays for time they held the property, credited to buyer.