Question

Bill pays his property tax bill of $980 for the calendar year. He signs a purchase and sale contract on June 28th and closes the sale on July 15th. The contract states, that the seller is responsible for expenses on the day of closing. What is the amount of prepaid taxes due back to Bill at closing. Assume 360 days per year.

Answer 1

The answer is $530.83.

Given,

For the entire calendar year, Bill pays his $980 property tax bill.

On June 28, Bill formally executes a purchase and sell agreement.

The sale is completed by Bill on July 15.

According to the contract, the seller is in charge of the closing day costs.

A 360-day year is assumed.

Number days till the date of closing = Till June 30 + till July 15

                                                            = (360/2) + 15

                                                            = 180+15

                                                            = 195 days

Therefore, tax paid by Bill till this date will be Prepaid tax.

Amount of prepaid tax = (Total amount of tax/number of days in the year) * Number days till the date of closing

Substituting the values in the above formula,

Amount of prepaid tax = ($980/360) * 195

                                      = $530.833

Hence, the amount of prepaid taxes due back to Bill at closing is $530.83.

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