The purchase price for a new home was $250,000. The buyer put down 20% and the balance was a mortgage for 80% of the purchase price. The appraised value at the time of closing was $263,000 and the assessed value was $266,000. What will the buyer pay for one year's property taxes if the tax rate is 2.5%?

Rationale

The buyer will pay $6,650 for one year's property taxes.

To calculate the property taxes, the assessed value of the home is used, which is $266,000. By applying the tax rate of 2.5%, the property taxes for the year are calculated as $266,000 multiplied by 0.025, resulting in $6,650.

A ($6,250) YOUR ANSWER

This option represents a calculation error, as it would correspond to a tax rate of approximately 2.35% applied to the assessed value of $266,000 ($6,250 ÷ $266,000 = 0.0235). However, the correct tax rate is 2.5%, resulting in a higher tax amount.

B ($5,000) YOUR ANSWER

This choice implies an incorrect assessment of the tax based on the home’s value. If the assessed value were $200,000, then a tax of $5,000 would apply at a 2.5% rate ($200,000 × 0.025 = $5,000). However, the actual assessed value of $266,000 leads to a much higher tax obligation.

C ($6,650) CORRECT

This is the correct calculation, as it uses the assessed value of $266,000 multiplied by the tax rate of 2.5%, yielding $6,650 in property taxes for the year.

D ($6,580) YOUR ANSWER

This option suggests a miscalculation, possibly assuming a tax rate lower than 2.5%. For instance, this amount would correspond to a tax rate of about 2.47% based on the assessed value ($6,580 ÷ $266,000 = 0.0247), which does not align with the given tax rate.

Conclusion

The property tax is determined by multiplying the assessed value of the home by the tax rate. In this case, with an assessed value of $266,000 and a tax rate of 2.5%, the annual tax bill amounts to $6,650. Understanding this calculation is essential for new homeowners to accurately budget for ongoing property tax expenses.

The buyer will pay $6,650 for one year's property taxes.

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