A buyer will be purchasing an office building in downtown Dubuque, Iowa for $750,000. The banker who is financing the property wants the buyer to deposit 3 months of property taxes into an escrow account. If the taxes are based on 3% of the sale price, what is the dollar amount of taxes the buyer needs to deposit into the escrow account?

Rationale

$5,625.

To calculate the amount that the buyer needs to deposit into the escrow account, first determine the annual property taxes by multiplying the sale price of $750,000 by the tax rate of 3%. This results in annual taxes of $22,500. Dividing this figure by 4 gives the quarterly tax amount of $5,625, which is the required escrow deposit.

A ($5,600) YOUR ANSWER

This choice is incorrect because it underestimates the quarterly property tax amount. The annual tax of $22,500, when divided by 4, results in $5,625, making $5,600 an inaccurate figure for the required escrow deposit.

B ($5,625) CORRECT

This is the correct answer and represents the accurate calculation of the quarterly property taxes. By taking 3% of the purchase price ($750,000), the annual tax is $22,500, and dividing that amount by 4 gives the required deposit of $5,625.

C ($5,650) YOUR ANSWER

Choosing this option would indicate an overestimation of the quarterly property tax amount. The correct calculation yields $5,625, so $5,650 does not reflect the accurate division of the annual tax.

D ($5,675) YOUR ANSWER

This option is also incorrect as it represents an even larger overestimation of the quarterly tax payment. The correct quarterly tax amount is derived from the annual tax of $22,500 divided by 4, which does not support this choice.

Conclusion

To summarize, the buyer must deposit $5,625 into the escrow account, which is derived from calculating the annual property taxes based on 3% of the purchase price, then dividing that annual total by four to find the quarterly payment. This ensures that the escrow account has adequate funds to cover the property tax obligations.

$5,625.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test