Free California review resource
Closing debits, credits and prorations
Keep buyer cash, seller net, assigned charges and the direction of proration separate.
Original educational material. Review date: October 6, 2026. Use the full linked lesson for context and current official sources for a live transaction. A study worksheet does not establish exam readiness.
Separate the two sides
Buyer cash due = price - new loan + buyer charges - buyer deposits and credits. Seller net = price - seller payoff - seller charges. Use the allocations stated in the question; commission and other charges are not automatically assigned to one party.
Proration direction
For an accrued expense paid later by the buyer, the seller's share is generally a seller debit and buyer credit. For an expense prepaid by the seller covering the buyer's period, the buyer reimburses the seller. Prepaid rent is income: the seller credits the buyer for the period belonging to the buyer.
Use the stated 30/360 or actual-day convention and stated allocation of the closing day. Keep intermediate precision and round the final amount as instructed.
Proration
Daily Rate = Annual Amount / Stated Year Basis; Share = Daily Rate × Assigned Days
Proration allocates an expense or income between ownership periods. Use the problem's day-count convention and closing-day assignment. A 30/360 exercise uses 30-day months; an actual-day exercise uses the stated calendar basis. Prepaid expenses paid by the seller can create a seller credit. Advance rent collected by the seller for the buyer's period creates a buyer credit instead.
- Confusing "paid in arrears" with "paid in advance"; arrears flips who owes whom
- Dividing by 365 when the problem specifies a 30/360 convention, or the reverse
- Counting a tax proration from 1 January; California's tax year starts 1 July
- Changing the divisor to 360 but still counting actual calendar days instead of 30-day months
- Counting the closing day for the wrong party
- Forgetting to convert monthly amounts to daily before prorating
Documentary Transfer Tax
County Tax = ceil((Consideration - Liens Remaining) / $500) × $0.55, if taxable value exceeds $100
For a taxable transfer under Revenue and Taxation Code section 11911, exclude liens remaining on the property from consideration or value. If that base exceeds $100, divide by $500, round the units UP, and multiply by $0.55. A $100,100 base gives 201 units and $110.55. A loan paid off at closing is not a remaining lien. Check statutory exemptions and local ordinances separately; this formula does not determine every city's tax.
- Deducting a loan paid off at closing
- Failing to round partial $500 units up
- Using $0.55 per $1,000 rather than per $500
- Applying a separate city rate without checking its base and exemptions