David Saks: April 2008

David Saks - Real Estate Broker - The Real Estate Mart of Tennessee, Inc. - 4040 North Watkins-Suite #4 - Memphis, Tennessee 38127 - Phone (901) 357-4663

Not For The Squeamish

                                            accrued                                                                                                                      

If a real estate tax is levied for a current calendar year, payable during that year or in the coming year, the period from January 1st to the date of closing, or the day before closing, if you're in a state which excludes the sale date, we're dealing with what is commonly known as the accrued portion.

Just what is the accrued portion and how do we deal with the math?

If the current tax bill "ain't in the mail" the parties at closing have to agree on a fiqure which is estimated based on last years bill. That doesn't relieve you of the obligation to know if there have been any changes in the assessment rate for the current year if you happen to be in a reassessment calendar year, like we have coming up here in good old Memphis in 2009.

Here's a nifty little example, so let's get our pencil sharpened and a clean piece of paper to scribble on, and here we go:

The sale is gonna close on September 17 this year and the current real estate taxes amounting to 1200 bucks have to be prorated. Let's use the 360 day year, or the good old bankers year, for this example. The accrued portion is 8 months and seventeen days. What we have to do first is prorate the real estate tax based on the number of months and the days :

$1200 / 12 months = $100 per month

$100 / 30 days = $3.333 a day.

Now ladies and gentlemen we can multiply these numbers by the accrued period, add the numbers we got from our calculations and come up with the figure we call the prorated real estate tax.

$100 x 8 months = $800

$3.333 x 17 days = $56.661

$800 + $56.661 = $856.661

So you see, the accrued real estate tax for 8 months and 17 days is equal to a grand total of of $856.66 which we have rounded off so the seller won't have to break a dollar bill for one thousandth of a cent.

We call this figure the sellers accrued earned tax and it is a credit to the buyer a debit to the seller when they take it to the closing table.

Wasn't that fun ?

Have you ever had a math nightmare with taxes at closing ?

Thanks for your thoughts.




David Saks



Time&Temp Memphis

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Comment balloon 11 commentsDavid Saks • April 06 2008 02:44PM
Not For The Squeamish
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