Humber/Ontario Real Estate Course 3 Exam Practice

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When calculating tax adjustments for a property closing on June 13th, what is the correct credit amount if the seller has already paid annual taxes of $3,000?

$1,652.22 credit to the buyer.
$1,652.22 credit to the seller.
$1,660.44 to the buyer.
$1,660.44 to the seller.
$1,660.27 credit to the seller.
$1,600.00 credit to the buyer.

The correct answer is: $1,652.22 credit to the buyer.

To determine the correct credit amount when calculating tax adjustments, it is essential to first calculate the daily property tax amount and then account for the number of days the seller is responsible for the annual tax before the closing date. In this case, the annual taxes are $3,000. Dividing this by 365 days gives a daily tax amount of approximately $8.22. Next, count the days from January 1 to June 13. This accounts for 164 days in total (31 days in January, 28 in February, 31 in March, 30 in April, 31 in May, and 13 in June). Now, multiply the daily tax amount by the number of days the seller has held the property until the closing date: $8.22/day × 164 days = approximately $1,350.48. This is the portion of the annual tax that has been incurred by the seller up to the closing date. To find the credit amount for the buyer, subtract this amount from the total annual tax amount. The buyer will receive credit for the taxes that the seller has pre-paid beyond their ownership period. To find the amount the seller has overpaid for the period after closing, calculate the total