A seller is closing on a property on July 15th. The annual property taxes of $3,600 have been paid in full by the seller for the entire calendar year. How much credit will the seller receive from the buyer at closing, assuming a statutory year (360 days) and the seller is responsible for the day of closing?
- A$1,710
- B$1,650
- C$1,620
- D$1,680
Show answer & explanationAnswer & explanation
Correct answer: C. $1,620
First, calculate the daily tax rate: $3,600 / 360 days = $10 per day. The seller is responsible for taxes up to and including the closing date (July 15th). The buyer is responsible from July 16th to December 31st. Days in months: Jan (30), Feb (30), Mar (30), Apr (30), May (30), Jun (30), Jul (30). Seller's paid period from July 16th to Dec 31st: Jul (15 days remaining) + Aug (30) + Sep (30) + Oct (30) + Nov (30) + Dec (30) = 165 days. Credit to seller: 165 days * $10/day = $1,650.
Why the other options are wrong
- A. This is a common miscalculation using actual days or incorrect start/end dates.
- B. This is the correct credit to the seller.
- D. This is a common miscalculation using actual days or incorrect start/end dates.
Property Tax Proration
The process of dividing property taxes fairly between the buyer and seller at closing, based on the closing date and who has already paid the taxes for the period.
- Calculated on a daily basis.
- Uses either a statutory year (360 days) or actual days (365/366).
- Buyer or seller is debited/credited depending on who paid and who is responsible for the period.
Memory trick: Determine daily tax, then count buyer's days, credit the seller's stack.