Legal Matters: Taxes can be tricky
Last-minute adjustments on the dollar amount needed to close a home purchase has a reader scratching their head.
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Q: We are closing on the purchase of a home this week and our lawyer let us know the dollar amount we need to bring in to close the transaction. When he emailed us, the amount was strange as we thought it would simply be the purchase price minus our deposit minus the amount we are getting for the mortgage; but the figure was off by a few hundred dollars. This was explained as last-minute adjustments which we were not aware of. Can you explain this?
A: Typically at the beginning of the year, the municipalities have not issued the property tax bill until mid- to late January so, if you are closing a property before the invoice has been issued and the first instalment has been made by the sellers, there will be a credit to the purchaser for the estimated amount of taxes the sellers should have paid for their occupancy for the month of January. If you are purchasing a condo, likewise, there will be an adjustment in favour of the sellers who will have paid the monthly common expenses for the month of January. There may be other adjustments for prepaid items such as yearly fees for security systems and parking pad fees.
So, when you sit down with your lawyer, you should walk through the statement of adjustments which will set out all of these debits and credits to fine-tune the purchase fees adjusted to the day of the transaction.
Jeffrey Cowan is a real estate lawyer and can be reached at email@example.com