Annual property taxes on a home are $2,400. The property closes on June 1. Using a 360-day banker's year and assuming taxes are paid in arrears, what is the amount the seller owes the buyer as a tax proration credit?
Correct Answer
B) $1,000
Using a 360-day year, the daily tax rate is $2,400 ÷ 360 = $6.67 per day. The seller is responsible for January 1 through May 31, which equals 150 days (5 months × 30 days). 150 × $6.67 = $1,000. Because taxes are paid in arrears, the seller credits the buyer $1,000 at closing.
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Related Topics & Key Terms
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Related Concepts
The capitalization rate (Cap Rate) is the rate of return on a real estate investment based on its expected income.
Commission splits refer to the division of the total real estate commission among the listing and selling brokerages, and then between each broker and their respective agents. Commission rates and splits are always negotiable.
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.
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