Florida Real Estate Sales Associate Examination Content OutlineReal Estate MathMedium
A buyer is closing on a property on July 20th. The annual property taxes are $3,650 and have been paid in full by the seller for the entire year. Assuming a 365-day year, how will the property taxes be prorated at closing, and who owes what to whom?
- ASeller owes buyer $2,050
- BBuyer owes seller $2,050
- CSeller owes buyer $1,600
- DBuyer owes seller $1,600
Show answer & explanationAnswer & explanation
Correct answer: D. Buyer owes seller $1,600
Seller has paid for the full year. From July 20th to December 31st, the buyer will own the property. Days remaining in year: July (12 days: 31-19) + Aug (31) + Sep (30) + Oct (31) + Nov (30) + Dec (31) = 165 days. Daily tax rate: $3,650 / 365 = $10/day. Buyer's share: 165 days * $10/day = $1,650. The buyer owes the seller for the portion of the year the buyer will own the property for which the seller has already paid.
Why the other options are wrong
- A. Incorrectly states seller owes buyer and incorrect amount.
- B. Incorrect calculation of prorated amount or who owes whom.
- C. Incorrectly states seller owes buyer; the buyer benefits from the seller's upfront payment.
Property Tax Proration
The division of property taxes between the buyer and seller at closing, based on the portion of the year each party owns the property.
- Calculated daily or monthly.
- Determines who owes whom at closing.
- Seller usually credited for prepaid period, buyer for unpaid.
Memory trick: Prorations Precisely Partition Payments.