Humber/Ontario Real Estate Course 4 Exam Practice

If a buyer purchased a home for 85% of the asking price, how would the current year's taxes be adjusted at closing if paid in full by the seller?

1. $1,652.22 to the buyer.

2. $1,652.22 credit to the seller.

3. $1,660.27 credit to the seller.

4. $3,000 credit to the seller.

5. $3,000 to the buyer.

6. $1,660.44 to the buyer.

The correct answer is: $1,652.22 to the buyer.

To determine how the taxes would be adjusted at closing based on the sale of the home for 85% of the asking price, it's important to understand how property taxes are typically prorated between the buyer and seller. When a seller pays the current year's taxes in full, the buyer will be credited for the portion of those taxes that corresponds to the time they will own the property during that tax year. If the buyer is purchasing the property for less than the asking price, it doesn't directly affect the tax calculation but is rather about the total amount of the taxes involved. Assuming the property taxes for the entire year amount to $1,660.44, if we calculate the portion relevant for the closing date, the seller would provide a credit to the buyer for any taxes covering the period after the buyer takes ownership. In this scenario, since the seller paid the full tax amount, the buyer would receive a credit equivalent to the seller’s pre-paid taxes for the period they will not own the home. Given that the taxes were reported as $1,652.22 in the correct answer, it suggests this is the amount calculated based on the proportion of the year that the property is owned by the buyer, taking into account any applicable proration methods