The purchase price for a new home was $400,000. 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 $413,000 and the assessed value was $415,000. What will the buyer pay for one year property taxes if the tax rate is 2.5%?

Rationale

$10,375 will be the buyer's property tax for one year.

To calculate the annual property tax, we first need to determine the assessed value of the home and then apply the tax rate. With an assessed value of $415,000 and a tax rate of 2.5%, the property tax is calculated as $415,000 multiplied by 0.025, resulting in $10,375.

A ($10,000) YOUR ANSWER

This amount reflects a tax calculation based on a lower assessed value or tax rate than what is provided in the question. Specifically, $10,000 would correspond to an assessed value of $400,000 at a 2.5% tax rate, which does not apply here as the assessed value is $415,000.

B ($8,000) YOUR ANSWER

This option incorrectly suggests a significantly lower tax amount, which could only be accurate if the assessed value was much lower or if the tax rate was less than 2%. For an assessed value of $415,000, this choice does not align with the provided tax rate of 2.5%.

C ($10,375) CORRECT

This reflects the correct calculation of property taxes based on the assessed value of $415,000 at a tax rate of 2.5%. The formula used is $415,000 x 0.025, equating to $10,375.

D ($10,330) YOUR ANSWER

This figure suggests a slight miscalculation. While it is close to the correct answer, it does not accurately represent the tax amount calculated from the assessed value of $415,000 at a 2.5% rate, which is definitively $10,375.

Conclusion

The accurate property tax for the buyer is determined by applying the tax rate to the assessed value of the home. In this case, with an assessed value of $415,000 and a tax rate of 2.5%, the buyer will pay $10,375 in property taxes for one year. The other options fail to reflect the correct application of the tax rate to the assessed value, making them incorrect.

$10,375 will be the buyer's property tax for one year.

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