A real estate licensee is prorating taxes. Last year's taxes of $1,260 were paid in arrears on February 1 for the previous calendar year. Closing is set for June 15. Based on last year's taxes, what amount of prorated taxes should the seller pay at closing? Seller pays for the day of closing. Use a 360-day year and a 30-day month. Round to the nearest cent

Rationale

$577.50 represents the amount of prorated taxes the seller should pay at closing.

To determine the prorated taxes, we first calculate the daily tax rate based on last year's total taxes of $1,260, then multiply by the number of days the seller is responsible for, which is from January 1 to June 15, inclusive.

A (472.5) YOUR ANSWER

This amount is derived incorrectly, possibly by miscalculating the number of days the seller is responsible or misunderstanding the tax rate. The prorated taxes are based on an entire year's tax divided by the number of days to find a daily rate, which was not accurately calculated here.

B (525) YOUR ANSWER

This figure suggests an inaccurate calculation of the seller's responsibility for the taxes. It may have resulted from an incorrect number of days being multiplied by the daily tax rate. The actual prorated amount is higher because the seller's responsibility extends longer than what this figure represents.

C (577.5) CORRECT

This is the correct calculation, derived from the total annual taxes of $1,260 divided by 360 days to find a daily rate of $3.50. The seller is responsible for 165 days (from January 1 to June 15), leading to a total of $3.50 x 165 = $577.50.

D (682.5) YOUR ANSWER

This amount overestimates the seller's prorated tax liability. It likely results from counting too many days of responsibility or using a higher daily tax rate than justified by the total annual taxes. The correct calculation shows that the seller's responsibility is less than this amount.

Conclusion

Prorating taxes accurately requires understanding the annual tax total, the daily tax rate, and the number of days for which the seller is liable. In this case, the seller's total tax responsibility of $577.50 accurately reflects the prorated amount calculated for 165 days of ownership. Proper prorating is crucial in real estate transactions to ensure fair distribution of expenses at closing.

$577.50 represents the amount of prorated taxes the seller should pay at closing.

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