Maryland Home Improvement PSI Practice Exam

What will be the seller's credit for property taxes already paid if the closing date is March 1 and the seller paid $960 in annual property tax?

1. $120

2. $160

3. $800

4. $840

The correct answer is: $800

To determine the seller's credit for property taxes already paid, it's essential to first understand how much of the annual property tax has been allocated for the period the seller owned the property before closing. In this scenario, the seller has paid $960 for the entire year in property taxes, which spans 12 months. To find the monthly property tax amount, divide the annual tax by 12. This gives us $960 / 12 = $80 per month. Next, since the closing date is March 1, the seller will have owned the property for the first two months of the year (January and February) before the closing. Therefore, the seller will have used up two months’ worth of the property taxes. This equals 2 months x $80/month = $160. However, the seller will not be responsible for any taxes after the sale, so the buyer is effectively benefiting from the pre-paid property taxes for the remaining months of the year. The total amount of property taxes for the remaining ten months will then be the remaining portion of the annual tax, which is $960 - $160 = $800. Thus, the seller's credit for property taxes already paid at closing will be $800, as that amount