The closing date for a house is August 16. The market value of the property is $160,000. The assessed value is 50% of market value, and the tax levy is $55 per $1,000 of assessed value. The taxes have not been paid for the year. Using a 365-day year, what is the amount of the prorated taxes on the closing statement?

Rationale

$1,651 is the amount of the prorated taxes on the closing statement.

To calculate the prorated taxes, we first determine the assessed value, which is 50% of the market value of $160,000, resulting in $80,000. The tax levy is then calculated as $55 per $1,000 of assessed value, leading to a total annual tax of $4,400. Since the closing date is August 16, we prorate the taxes for 231 days of the year, yielding a prorated tax amount of $1,651.

A (1,651) CORRECT

This choice correctly represents the prorated tax calculation based on the assessed value and the number of days the property was held during the tax year. The detailed calculation confirms that the prorated amount for 231 days results in $1,651.

B (2,748) YOUR ANSWER

This figure incorrectly assumes a different prorated period or tax rate. It does not reflect the proper calculation based on the assessed value of $80,000 and the tax levy of $55 per $1,000, leading to a misunderstanding of the prorated tax amount.

C (4,400) YOUR ANSWER

This choice represents the total annual taxes owed on the property, calculated from the assessed value and tax rate. However, it does not take into account the prorated amount due to the closing date of August 16, which requires a calculation for a partial year.

D (5,498) YOUR ANSWER

This amount appears to be an incorrect total based on an erroneous tax calculation or an incorrect number of days considered for proration. It significantly exceeds the correct prorated tax amount, indicating a misunderstanding of both the market value and assessed value calculations.

Conclusion

The calculation of prorated taxes is crucial for accurate financial representation at closing. In this scenario, understanding the assessed value, the tax levy, and the number of days until the closing date leads to the correct prorated tax amount of $1,651. This ensures that both buyer and seller are aligned on financial obligations for the property in question.

$1,651 is the amount of the prorated taxes on the closing statement.

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