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Prorating Taxes, Practice Questions as Requested

Prorating Taxes
Written by Travis

Additional Prorating Exercises

Hello All.  A couple of weeks ago a Kirsten left a comment asking if I had any drills or practice questions for her to practice for the real estate exam.  Well Kirsten, here you go!  I organized the following exercises together so that they build on each other and by the end of the 20 questions you should be proficient at prorating.

Everyone, please continue to ask questions.  I will be be glad to help anyway I can.  Also Kirsten, please let me know how you do on the exam.

 

Before you begin, please read the assumptions below.  Depending on your state and the exam your assumptions may differ.

Basic Assumptions:

    • I will be using the “Bankers Calendar” which says that each month has 30 days and each year has 360 days.
    • The day of closing is included in the seller side of our calculations.
    • For examples below taxes have NOT been paid
    • Please check your answers after each set of questions.  I’ve designed them build up in complexity as you progress.

 

Practice Exercises for Prorating Taxes

Here are some practice examples that are broken down into the components needed for proration:

 

Daily Rate Calculation:

 

1.  What would the daily rate be if annual taxes are $4,662?

 

2.  What would the daily rate be if annual taxes are $1,569?

 

3.  What would the daily rate be if annual taxes are $890?

 

4.  What would the daily rate be if annual taxes are $2,660?

 

5.  What would the daily rate be if annual taxes are $13,000?

 

Number of Days to Calculate:

 

6.  Closing is set for Feb 15th.  How many days are the seller responsible for paying?

 

7.  Closing is set for July 7th.  How many days are the seller responsible for paying?

 

8.  Closing is set for June 30th.  How many days are the buyer responsible for paying?

 

9.  Closing is set for November 17th.  How many days are the buyer responsible for paying?

 

10.  Closing is set for August 14th.  How many days are the buyer responsible for paying?

 

Rate x Days Calculation:

 

11.  If the daily rate is $0.65 and closing is August 30th, what will the seller owe at closing.

 

12.  If the daily rate is $1.23 and closing is March 28th, what will the buyer owe at closing.

 

13.  If the daily rate is $0.45 and closing is July 7th, what will the seller owe at closing.

 

14.  If the daily rate is $2.34 and closing is December 1st, what will the seller owe at closing.

 

15.  If the daily rate is $5.62 and closing is June 30th, what will the buyer owe at closing.

 

Putting it All Together:

 

16.  Closing is set for July 15.  Annual taxes are $3,700.  How much does the buyer have to pay at closing?

 

17.  Closing is set for March 12th.  Annual taxes are $1,200.  How much does the seller have to pay at closing?

 

18.  Closing is set for September 8th.  Annual taxes are $6,080.  How much does the buyer have to pay at closing?

 

19.  Closing is set for May 1st.  Annual taxes are $1,020.  How much does the buyer have to pay at closing?

 

20.  Closing is set for July 15.  Annual taxes are $9,760.  How much does the seller have to pay at closing?

 

Explanations and Answers:

Daily Rate Calculation (Answers):

 

1.  What would the daily rate be if annual taxes are $4,662?

$4,662 annual taxes / 360 days = $12.95 daily rate

 

2.  What would the daily rate be if annual taxes are $1,569?

$1,569 annual taxes / 360 days= $4.36 daily rate

 

3.  What would the daily rate be if annual taxes are $890?

$890 annual taxes / 360 days = $2.47 daily rate

 

4.  What would the daily rate be if annual taxes are $2,660?

$2,660 annual taxes / 360 days = $7.39 daily rate

 

5.  What would the daily rate be if annual taxes are $13,000?

$13,000 annual taxes / 360 days = $36.11 daily rate

 

Number of Days to Calculate (Answers):

 

6.  Closing is set for Feb 15th.  How many days are the seller responsible for paying?

Jan = 30 days

Feb = 15 days (remember, seller has day of closing)

30 days + 15 days = 45 days

 

7.  Closing is set for July 7th.  How many days are the seller responsible for paying?

Jan – June = 6 months x 30 days = 180 days

July = 7 days

180 days + 7 days = 187 days

 

8.  Closing is set for June 30th.  How many days are the buyer responsible for paying?

June = 0 days (remember, seller pays day of closing)

Jul-Dec = 6 months x 30 days = 180 days

0 days + 180 days = 180 days

 

9.  Closing is set for November 17th.  How many days are the buyer responsible for paying?

Days in November = 30 – 17 = 13

December = 30 days

13 days + 30 days = 43 days

 

10.  Closing is set for August 14th.  How many days are the buyer responsible for paying?

Days in August = 30 – 14 = 16

Sep – Dec = 4 months x 30 days = 120 days

120 days + 16 days = 136 days

 

Rate times Days Calculation (Answers):

 

11.  If the daily rate is $0.65 and closing is August 30th, what will the seller owe at closing.

Jan – Aug = 8 months x 30 days = 240 days

240 days x $0.65 daily rate = $156.00

12.  If the daily rate is $1.23 and closing is March 28th, what will the buyer owe at closing.

March, 30 – 28 = 2 days

April – Dec = 9 months x 30 days = 270 days

270 days + 2 days = 272 days

272 days x $1.23 = $334.56

 

13.  If the daily rate is $0.45 and closing is July 7th, what will the seller owe at closing.

Jan-Jun = 6 months x 30 days = 180 days

July = 7 days

180 days + 7 days = 187 days

187 days x $0.45 = $84.15

 

14.  If the daily rate is $2.34 and closing is December 1st, what will the seller owe at closing.

Jan-Nov = 11 months x 30 days = 330 days

Dec = 1 day

330 days + 1 days = 331 days

331 days x $2.34 = $774.54

 

15.  If the daily rate is $5.62 and closing is June 30th, what will the buyer owe at closing.

Jul-Dec = 6 months x 30 days = 180 days

180 days x $5.62 = $1,011.60

 

Putting it All Together (Answers):

 

16.  Closing is set for July 15.  Annual taxes are $3,700.  How much does the buyer have to pay at closing?

$3,700 / 360 days = $10.28 daily rate

July = 30 – 15 = 15 days

Aug-Dec = 5 months x 30 days = 150 days

15 days + 150 days = 165 days

$10.28 daily rate x 165 days = $1,696.20

 

17.  Closing is set for March 12th.  Annual taxes are $1,200.  How much does the seller have to pay at closing?

$1,200 / 360 days = $3.33 daily rate

Jan-Feb = 2 months x 30 days = 60 days

March = 12 days

60 days + 12 days = 72 days

$3.33 daily rate x 72 days = $239.76

 

18.  Closing is set for September 8th.  Annual taxes are $6,080.  How much does the buyer have to pay at closing?

$6,080 / 360 = $16.89 daily rate

Sep = 30 – 8 = 22 days

Oct-Dec = 3 months x 30 days = 90 days

90 days + 22 days = 112 days

$16.89 daily rate x 112 days = $1891.68

 

19.  Closing is set for May 1st.  Annual taxes are $1,020.  How much does the buyer have to pay at closing?

$1,020 / 360 days = $2.83

May = 30 – 1 = 29

Jun-Dec = 7 months x 30 days = 210 days

29 days + 210 days = 239 days

$2.83 daily rate x 239 days = $676.37

 

20.  Closing is set for July 15.  Annual taxes are $9,760.  How much does the seller have to pay at closing?

$9,760 / 360 days = $27.11 daily rate

Jan-Jun = 6 months x 30 days = 180 days

Jul = 15 days

180 days + 15 days = 195 days

$27.11 daily rate x 195 days = $5,286.45

 

I hope these examples have helped you all have a better understanding how to prorate taxes.  If there are more examples and subjects that you would like for me to provide then please ask.  As always, I welcome your feedback to help make this site better for everyone.

 

Blessings,

 

Travis

About the author

Travis

20 Comments

  • Hi Travis,
    I really want to thank you so much for this. It has helped me understand the math that I just couldn’t seem to grasp. Your considerate help is a blessing to me, and again, thank you!

    Blessings to you,
    Sally

    • Sally,
      Thank you very much for your kind comment. I wish you the best of luck in your real estate career and please let me know if there is another area/topic that you’d like to see on this site that would benefit you and others.

      Blessings,
      Travis

  • Wow…Awesome job explaining Prorating Taxes and breaking it down that way….I get it now Thanks so much! Linda~

    • Thanks Linda! I appreciate the feedback. Please let me know if I can help with anything else.
      Blessings,
      Travis

  • Thanks Travis! This was a fun exercise. Classes are behind me now, and test is when i feel like taking it. Studying my butt off for it these days. Am I overthinking or stressing too much about the math part? I’m confident I will be a top Realtor someday. Just have to get through the test first. Thanks for providing this. If what you put on your site is the type of math I will see, I’ll be good. If they want me to measure the distance of air space within an acre boundary that an Alien spaceship can hover over, I may be doomed.
    – Scott (The Little Guy with the Bow tie)

    • Thanks Scott! Glad to help. Please let me know how to do on the test. I’d love to have some feedback. Best of luck to you and your career as a top producing agent!!!
      Blessings,
      Travis

  • Travis, could you give steps on calulating the balance due on closing. I thought you minus downpayments. Thanks so much.I failed my third exam because of this.

    • Debbie,

      I have plans on posting an article soon concerning the closing statement but currently studying the new Closing Disclosure that is replacing the HUD on August 1st.

      As for now, let’s talk about the current HUD. It does sound intuitive to subtract the down payment since the borrower has already “paid” that amount so I can see how that mistake would be made. However, the current HUD is not organized that way. In the lower left section of the HUD (section 200) we have to ADD all of the amounts paid by borrower together to get a “Total Paid by/for Borrower” (line 220). This includes down payments, closing cost, amount of new loan, and taxes paid.

      After we have that total we THEN would subtract the total of line 220 from the “Gross Amount Due from Borrow” (line 120) to get the amount the borrow owes at closing. I hope that answers your question for now. I promise to post a more detailed closing statement article once the new HUD is out.

      I’ll be glad to try and answer any more questions that you may have so please let me know.

      Blessings,

      Travis

  • Travis, this website is awesome it really has helped me understand prorations much better ! I was wondering if you’re going to put up another one similar to this but with calendar years instead of bankers years or maybe you have posted that already if you could point me in that direction it would be awesome ! Thank you so much !

    -Andrea

    • Hello Andrea – I will be glad to write a post on proration using the calendar years. Please give me about a week to do so. I’m finishing up work on my first real estate math ebook that will hopefully help lots of people. Once I send it off to be reviewed I’ll work on that post for you. Thanks for visiting and please come back often. Also, please let me know what you would like to see on this site (besides real estate math). I’d like to begin adding additional resources for new and existing agents.

      Blessings,

      Travis

  • Great exercises, especially with the progressive steps. Thanks for the practice great teaching method.

    • Thanks so much Marwin! Please let me know if there is anything else that I can add to help.

      Blessings,

      Travis

  • I just wanted to say this system is very helpful. I love the step by step process, it made it easy to understand and learn. Could you do other math problems related to real estate using this type of guide? Great job.

    • Thank you Eliseo. That makes me feel great! I will start looking at doing the same for other real estate math areas. Any place in particular that you have in mind?

    • Glad to help Tasha! I will say a little prayer for you tomorrow. Please let me know how it goes. Blessings,

      Travis