58. Missouri taxes on a property are $625 per year from January 1 to December 31. The property is sold and closes on October 31. If the taxes for the current year are prorated at closing, the closing statements will show a
Answer: C
The closing statements will show a debit to the seller of $104.17 and a credit to the buyer of $104.17.
When prorating the property taxes for the current year at closing, the calculations indicate that the seller owes $104.17 for the portion of the year they owned the property, while the buyer is credited that same amount since they will be responsible for the taxes for the remaining months.
A) credit to the buyer of $520.83 and a debit to the seller of $520.83.
This option is incorrect because it miscalculates the total taxes owed. The full amount of $625 represents the annual tax, but only a portion is applicable up to the closing date, which needs to be accurately prorated.
B) credit to the seller of $520.83 and a debit to the buyer of $520.83.
This option is also incorrect as it incorrectly assigns the credit to the seller instead of the buyer. The seller should not receive a credit for the full annual amount since they are selling the property prior to the year’s end.
C) debit to the seller of $104.17 and a credit to the buyer of $104.17.
This option is correct; it reflects the accurate prorated amount for the days the seller owned the property in the current tax year. The seller is debited the amount they owe for the months up to the closing date, and the buyer is credited this same amount for their upcoming tax responsibility.
D) debit of $104.17 to the buyer only.
This option is incorrect as it suggests the buyer alone is debited, which does not reflect standard prorating practices. The seller must also be accounted for, with the amount being debited from their account and credited to the buyer's account.
Conclusion
The correct option clearly demonstrates the appropriate prorating of property taxes based on the time of ownership prior to the sale. The seller owes $104.17 for the time they held the property, which is why both the debit and credit reflect this amount. All other options either miscalculate the figures or incorrectly assign credits and debits between the buyer and seller.