During a closing on May 15, if $2,700 in taxes are paid in arrears for the year, what will be the debit and credit to the seller and the buyer at closing?

To determine the correct debit and credit amounts during the closing process, it is essential to understand how property taxes work, especially when they are paid in arrears. When taxes are paid in arrears, it means that the taxes are for the previous period and will typically apply for the year prior to the sale.

Given that the property taxes for the entire year amount to $2,700, and the closing occurs on May 15, we need to calculate the portion of the taxes that applies to the time the buyer will own the property after closing. The tax year is assumed to run from January 1 to December 31.

From January 1 to May 15 is approximately 4.5 months. We need to calculate the daily rate of the taxes for the year, which is $2,700 / 365 days, and then determine how many days the seller was responsible for taxes until the closing date.

1. Calculate the daily tax:

   • $2,700 / 365 = $7.3973 per day

2. Calculate the number of days from January 1 to May 15:

   • January (31 days) + February (28 days) + March (31 days) + April (30 days