California Real Estate Practice Exam

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A seller has paid taxes of $2,400 in advance on July 1 for the following year. He closes sale of the property on November 1. Who owes how much to whom?

The buyer owes the seller $1,400
The seller owes the buyer $1,400
The buyer owes the seller $1,000
The seller owes the buyer $1,000

The correct answer is: The buyer owes the seller $1,400

The seller owes the buyer $1,400. This is because the seller has paid taxes in advance for the following year, meaning they have overpaid for their share of the property taxes while they still owned the property. Since the sale of the property occurred on November 1, the seller would have owned the property for only 4 months out of the 12-month tax period. Therefore, the buyer would owe the seller for the remaining 8 months of taxes that were paid in advance, which amounts to $1,400. Option B is incorrect because the seller is the one who overpaid the taxes, so they are owed money from the buyer. Options C and D are incorrect because they do not take into account the full amount of taxes paid in advance or the fact that the seller is the one who overpaid.