If a seller has prepaid $2,400 in property taxes on July 1 and closes the sale on November 1, what is settled between the buyer and seller?

In this scenario, the seller has prepaid property taxes for the year on July 1, totaling $2,400. Since property taxes are typically billed on an annual basis, the seller has already covered the taxes from July 1 to June 30 of the following year.

When the sale closes on November 1, the buyer assumes ownership of the property, which means they will benefit from the property tax payments that have already been made. However, since the seller has prepaid taxes up until the end of June, the buyer will only be responsible for the taxes for the remaining portion of the year.

Calculating the prorated taxes from November 1 to June 30, the period the buyer will be living in the property, is essential. There are typically 12 months in a year, translating to a monthly tax amount of $200 ($2,400/12). From November 1 to June 30, there are 8 months. The taxes for this period total $1,600 (8 months x $200).

Given that the seller has already paid $2,400 in taxes but will only cover $1,600 of the buyer’s tax liability for the months they are in possession of the property, the seller