A Colorado broker is closing a transaction on March 15. The seller has already paid the first half of the property taxes (due February 28) but has not yet paid the second half (due June 15). The annual property tax is $3,600. How should the property taxes be handled at closing?
Correct Answer
B) The buyer receives a credit because Colorado property taxes are paid in arrears, so the seller owes the buyer for the portion of the year the seller occupied the property
Colorado property taxes are paid in arrears — meaning taxes paid in the current year cover the prior year's tax obligation. Therefore, at closing, the seller owes the buyer a credit for the portion of the current year that the seller has owned the property (January 1 through March 15), because those taxes will eventually be paid by the buyer. The buyer receives a credit (seller is debited) for the seller's share of the year's taxes accrued but not yet paid for the current year. This is a standard proration concept applied under Colorado's arrears payment system.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Reconciliation is the final step in the appraisal process where the appraiser analyzes the value indications from all applicable approaches and arrives at a single final opinion of value. It is not a simple average of the three values.
The comparable sales approach estimates a property's value by comparing it to similar properties that have recently sold in the same market area. It is the most widely used and reliable approach for appraising residential properties.
The cost approach estimates a property's value by calculating the current cost to rebuild the improvements, subtracting accumulated depreciation, and adding the land value. It is most reliable for new construction and special-purpose properties.
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Previous Question
During a listing presentation in Colorado, a seller asks her broker when property taxes are due. The broker correctly explains Colorado's property tax payment schedule. Which of the following accurately describes when Colorado property taxes are due?
Next Question
A residential property in Colorado has an actual value of $600,000. The residential assessment rate is 6.95% and the total mill levy is 100 mills. The closing date is April 1. Colorado property taxes are paid in arrears. What is the seller's tax proration credit owed to the buyer at closing? (Use a 365-day year; the seller is responsible for January 1 through March 31 = 90 days.)