A buyer is closing on a property on October 1st. The annual property taxes are $4,800 and have not yet been paid for the current year. Using the 365-day method, how much will the buyer owe the seller for prorated taxes, assuming the seller pays for the day of closing?
- A$1,200.00
- B$800.00
- C$1,000.00
- D$1,600.00
Show answer & explanationAnswer & explanation
Correct answer: B. $800.00
First, determine the daily tax rate ($4,800 / 365 days). Then, calculate the number of days the buyer owns the property from October 1st to December 31st (92 days). Multiply the daily rate by these days to find the buyer's share. If the seller pays for the day of closing, the buyer is responsible from October 2nd. However, standard prorations often assume the seller pays up to and including the closing date, and the buyer pays from the day after. The question states the seller pays for the day of closing, meaning the buyer is responsible for the remainder of the year. So, the buyer owes for October, November, and December (92 days).
Why the other options are wrong
- A. This might be a miscalculation of the number of days or the monthly rate.
- C. This is likely a miscalculation.
- D. This is likely a miscalculation or an incorrect number of months/days.
Property Tax Proration
The division of property taxes between the buyer and seller at closing, based on their respective periods of ownership for the tax year.
- Calculated at closing.
- Can use 360 or 365-day year.
- Buyer and seller share responsibility.
Memory trick: Find daily rate, count days for each, then allocate.