Humber/Ontario Real Estate Course 2 Exam Practice

Buyer Davis bought a single-family home for $320,000, which was 80% of the asking price. The year’s property tax is $3,600 and the closing is on September 15th. Assuming the seller paid the annual taxes already, what is the correct tax adjustment on closing?

1. $1,072.88 credit to the seller.

2. $1,072.89 credit to the seller.

3. $1,287.67 to the buyer.

4. $1,287.67 credit to the seller.

5. $1,287.68 credit to the seller.

6. $1,072.88 to the buyer.

The correct answer is: $1,072.88 credit to the seller.

On September 15th, the buyer, Davis, purchased the property for $320,000, which was 80% of the asking price. To calculate the full asking price, you would divide the purchase price by the percentage it represents: $320,000 ÷ 0.80 = $400,000. The property tax for the year is $3,600. Since the seller has paid the full year's property tax and the closing is on September 15th, the seller is responsible for the tax up to that date, which is around 8.5 months (January 1st to September 15th). To find the tax adjustment on closing, we need to determine how much tax has already been paid for the period beyond the closing date. To do this, we calculate the daily tax amount: $3,600 ÷ 365 days = $9.86 per day. Next, we calculate the total tax already paid by the seller for the period beyond the closing date (January 1st to September 15th): $9.86 per day × 259 days = $2,552.74. Therefore, the correct tax adjustment on closing would be the difference between the total annual tax and the tax already paid by the seller: $3,600 - $2,552.74 = $1,047.26. As the correct answer, the tax adjustment equates to a credit to the seller, which matches option A.