Annual property taxes are $4,800. Using a 360-day year (30 days per month), closing occurs on September 1 and the closing day belongs to the buyer. How much does the seller owe the buyer as a tax proration credit?
Correct Answer
B) $3,200
The seller is responsible for January 1 through August 31. Using a 360-day year (30 days per month), that is 8 months × 30 days = 240 days. The daily tax rate is $4,800 ÷ 360 = $13.33. The seller's proration is 240 × $13.33 = $3,200, which is credited to the buyer at closing.
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Related Topics & Key Terms
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Proration is the process of dividing expenses or income between the buyer and seller at the closing of a real estate transaction. This ensures each party pays or receives only their fair share based on the period of ownership.
Proration calculations divide shared expenses such as property taxes, insurance, HOA dues, and rent between buyer and seller at closing based on the number of days each party owns the property.
Transfer tax is a tax imposed on the transfer of real property ownership, typically calculated based on the sale price and paid at closing. It is commonly expressed as a rate per $100, $500, or $1,000 of the sale price.
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