Annual property taxes are $2,400, paid in arrears. Closing is August 1 (using a 360-day year, 30-day months). The closing day belongs to the buyer. How much does the seller owe the buyer at closing?
Correct Answer
C) $1,400
Because taxes are paid in arrears, the seller owes the buyer for the portion of the year the seller owned the property. The closing day belongs to the buyer, so the seller is responsible through July 31. Using the banker's rule (30-day months, 360-day year): January through July = 7 months × 30 days = 210 days. Daily tax rate: $2,400 ÷ 360 = $6.67/day. Seller's share: 210 × $6.67 = $1,400. The seller is debited $1,400 and the buyer is credited $1,400 at closing.
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