Annual property taxes are $4,000. The property closes on July 1. Using a 360-day year, what is the seller's prorated tax liability owed to the buyer at closing (taxes paid in arrears)?
Correct Answer
B) $2,000
Because taxes are paid in arrears, the seller owes the buyer for the portion of the year the seller owned the property (January 1 through June 30). Using a 360-day banker's year, that equals 6 months × 30 days = 180 days. Daily rate: $4,000 ÷ 360 = $11.11. Seller's share: 180 × $11.11 = $2,000 credit to the buyer at closing.
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Related Topics & Key Terms
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Related Concepts
Determining ownership days involves calculating the number of days each party (buyer and seller) owned the property during the relevant period (usually a year). This calculation is crucial for accurate proration.
The gross rent multiplier (GRM) is a quick method for estimating the value of income-producing property by multiplying the property's gross rent by a factor derived from comparable sales. GRM = Sale Price / Gross Rent.
IRV stands for Income, Rate, and Value. It represents the relationship between Net Operating Income (I), Capitalization Rate (R), and Property Value (V).
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