Humber/Ontario Real Estate Course 3 Exam Practice

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If Buyer Miller agrees to purchase a home with annual property taxes of $2,500 that close on July 15th, what would be the tax adjustment if the seller has prepaid the taxes?

$1,142.47 credit to the buyer.
$1,287.67 credit to the buyer.
$1,000.00 credit to the seller.
$1,142.47 credit to the seller.
$1,287.67 credit to the seller.
$1,200.00 to the seller.

The correct answer is: $1,142.47 credit to the seller.

To determine the appropriate tax adjustment, it's necessary to calculate how much of the prepaid taxes should be allocated to the buyer or seller based on the closing date. In this situation, the annual property tax is $2,500, which means the monthly tax amount would be approximately $208.33 ($2,500 divided by 12 months). Since the closing is on July 15th, we consider the first half of the year (January to June) during which the seller would have utilized the prepaid taxes. The seller has prepaid the taxes for the entire year; thus, the portion covering January 1 to July 15 (the closing date) needs to be calculated. We consider the six full months from January to June and the partial month of July (which is half of July). For six full months (January to June), this amounts to $1,250 (which is $208.33 multiplied by 6). Additionally, for the first half of July (since the closing is on the 15th), the buyer would be responsible for an additional $104.17 (half of the monthly tax amount). Therefore, the seller has prepaid a total of $1,250 plus $104.17, which amounts to $1,