A Utah real estate agent is representing a buyer purchasing a home in Salt Lake County. The closing is scheduled for April 30, and the seller has not yet paid the current year's property taxes (which are due November 30). The county assessor has determined the property's fair market value is $600,000, and the combined mill levy is 10 mills. At closing, how should the current year's property taxes be handled between the buyer and seller?
Correct Answer
D) The taxes are prorated at closing, with the seller debited for January 1 through April 30 and the buyer credited for that same amount, based on the estimated annual tax
Because Utah property taxes are assessed as of January 1 (Utah Code § 59-2-102) but are not yet paid at the April 30 closing, the standard practice is to prorate the annual tax at closing. The seller is responsible for the portion of the year they owned the property (January 1 through April 30 = 120 days out of 365). The seller is debited for their share of the estimated annual tax, and the buyer is credited for that same amount. The estimated annual tax = $600,000 × (10 ÷ 1,000) = $6,000. Seller's share = $6,000 × (120/365) ≈ $1,973. The seller is debited $1,973 and the buyer is credited $1,973 at closing, so the buyer can pay the full tax bill in November.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A transfer tax is a tax imposed on the transfer of ownership of real estate.
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.
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