National Real Estate Exam (PSI)Real Estate CalculationsMedium
A seller has already paid the full year's property taxes of $3,600. Closing occurs on July 1, with the buyer taking ownership that day. Using a 12-month proration method, how much does the buyer owe the seller at closing for taxes?
- A$1,200
- B$2,700
- C$900
- D$1,800
Show answer & explanationAnswer & explanation
Correct answer: D. $1,800
Monthly tax amount = $3,600 ÷ 12 = $300. Since the seller already paid for the full year, the buyer must reimburse the seller for the remaining 6 months (July–December): $300 × 6 = $1,800.
Why the other options are wrong
- A. This is only 4 months' worth of taxes.
- B. This is 9 months' worth, too much.
- C. This is only 3 months' worth, not 6.
Tax Proration (Prepaid)
When a seller has prepaid taxes for the year, the buyer reimburses the seller for the portion of the year the buyer will own the property.
- Divide annual amount by 12 for monthly rate
- Count remaining months after closing date
- Buyer owes seller when seller prepaid
Memory trick: Prepaid means buyer pays seller back for future months