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 $261,000 and the assessed value was $266,000. What will the buyer pay for one year's property taxes if the tax rate is 4%?

Rationale

The buyer will pay $10,640 for one year's property taxes.

To calculate the property taxes, we use the assessed value of the home, which is $266,000, and apply the tax rate of 4%. This results in annual property taxes of $10,640.

A ($10,000) YOUR ANSWER

This amount is incorrect because it does not accurately reflect the calculation based on the assessed value and tax rate. If the assessed value were significantly lower or the tax rate were reduced, this could be a plausible figure, but with the given values, it does not hold.

B ($8,000) YOUR ANSWER

This choice is also incorrect, as it underestimates the property taxes. It would imply a much lower assessed value or tax rate than those provided in the question, failing to account for the actual assessed value of $266,000 at a 4% rate.

C ($10,640) CORRECT

This is the correct choice, as it correctly represents the calculation: 4% of the assessed value of $266,000 results in $10,640 in property taxes for the year.

D ($10,440) YOUR ANSWER

This option is incorrect because it slightly underestimates the property tax amount. This figure may arise from a miscalculation of the tax rate applied to the assessed value or using an incorrect assessed value altogether, leading to a total that does not match the correct calculation.

Conclusion

The buyer's annual property tax payment is derived directly from the assessed value of the home multiplied by the tax rate. At an assessed value of $266,000 and a tax rate of 4%, the resulting tax obligation is $10,640, accurately reflecting the financial responsibility associated with homeownership in this scenario. Understanding this calculation is crucial for buyers in managing their property expenses effectively.

The buyer will pay $10,640 for one year's property taxes.

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