Question

Annual taxes of $4,200 have been paid on a property that is closing on July 15. What will be the settlement sheet entry for the proration of the taxes between the buyer and seller?

a) Buyer owes $1,400, seller owes $2,800
b) Buyer owes $3,150, seller owes $1,050
c) Buyer owes $2,100, seller owes $3,150
d) Buyer owes $2,800, seller owes $1,400

Answer 1

To prorate the taxes between the buyer and seller, calculate the number of days each party is responsible for and use that to determine the proration amount. The buyer owes $2,254.79 and the seller owes $2,777.26.

Step-by-step explanation:

The proration of the taxes between the buyer and the seller can be calculated by determining the number of days for which each party is responsible. Since the property is closing on July 15, the buyer would be responsible for taxes from January 1 to July 15, which is 195 days. The seller would be responsible for taxes from January 1 to July 14, which is 196 days.

To calculate the proration amount, divide the annual taxes by 365 days and multiply it by the number of days each party is responsible for.

For the buyer, the calculation would be: $4,200 / 365 * 195 = $2,254.79.

For the seller, the calculation would be: $4,200 / 365 * 196 = $2,777.26.

Therefore, the correct entry on the settlement sheet would be that the buyer owes $2,254.79 and the seller owes $2,777.26.