Real Estate Proration Calculations — Step by Step
Master real estate proration calculations with the 365-day and 360-day methods. Worked examples for tax, rent, and insurance. Free practice test included.
Proration calculations divide shared expenses between buyer and seller at closing, and they appear on nearly every real estate licensing exam. Earning your real estate license requires mastering this skill because proration questions are among the most missed math problems — candidates confuse the daily rate formula with debit/credit allocation. This guide walks through the 365-day and 360-day methods, provides worked examples for property tax, rent, insurance, and HOA prorations, and includes practice problems with solutions. Before solving any proration problem, you need to know which calculation method the exam expects.
What Is Proration in Real Estate?
Proration in real estate is the division of a shared expense between buyer and seller based on the number of days each party owns the property during a billing period. When a property sells mid-year, the seller has already paid (or owes) expenses that cover time after closing, so the cost must be split proportionally. Expenses commonly prorated at closing include property taxes at closing, rent (if the property is tenant-occupied), homeowner insurance, HOA dues, and utility bills.
The universal formula for proration is straightforward. Divide the annual cost by the number of days in the period to find the daily rate, then multiply the daily rate by the number of days each party owns the property to find each party’s share. On the real estate exam, proration questions typically provide the annual cost and closing date, then ask you to calculate one party’s share. The first decision in any proration problem is whether to use the 365-day method or the 360-day method.
The 365-Day Method vs the 360-Day Method
The 365-day method divides annual costs by 365 actual days, while the 360-day method uses a banker’s year of 360 days (12 months of 30 days each).
| Feature | 365-Day Method | 360-Day Method |
|---|---|---|
| Days in year | 365 | 360 |
| Days per month | Actual (28-31) | 30 |
| Also called | Calendar year method | Statutory/banker’s year method |
| Used by | Most states, PSI default | Some states (check exam instructions) |
| Daily rate | Slightly lower | Slightly higher |
Use the 360-day method when the exam question says “use a 360-day year” or “use a 30-day month.” Use the 365-day method when the question says “use actual days” or does not specify a method. A quick side-by-side shows why the distinction matters: $3,650 annual tax / 365 = $10.00/day vs $3,650 / 360 = $10.14/day. The difference is small but produces a wrong answer if you use the wrong method.
Read the problem instructions carefully on the real estate exam — the method is almost always specified. Understanding the real estate exam format helps you anticipate how proration questions are structured. With the correct method identified, property tax proration is the most common calculation you will encounter.
Property Tax Proration — Step by Step
Property tax proration calculates how much of the annual property tax bill the seller owes for the days before closing and how much the buyer owes for the days after closing. Follow these four steps for every property tax proration problem on the real estate exam.
Step 1 — Find the daily rate: Annual Property Tax / 365 (or 360) = Daily Rate
Step 2 — Count the seller’s days: January 1 through the day before closing
Step 3 — Multiply: Daily Rate x Seller’s Days = Seller’s Share
Step 4 — Subtract from annual tax to find buyer’s share (or calculate directly using buyer’s days)
Worked Example 1 (365-Day Method)
- Annual property tax = $4,380
- Closing date = April 15
- Seller owns January 1 through April 14
Count the seller’s days: January has 31 days + February has 28 days + March has 31 days + April 1-14 = 14 days. Total = 31 + 28 + 31 + 14 = 104 days.
Daily rate = $4,380 / 365 = $12.00 per day
Seller’s share = $12.00 x 104 = $1,248.00
Buyer’s share = $4,380 - $1,248 = $3,132.00
Worked Example 2 (360-Day Method)
- Annual property tax = $5,400
- Closing date = September 1
- Seller owns January 1 through August 31
Count the seller’s days using 30-day months: 8 months x 30 = 240 days
Daily rate = $5,400 / 360 = $15.00 per day
Seller’s share = $15.00 x 240 = $3,600.00
Buyer’s share = $5,400 - $3,600 = $1,800.00
Most exams assume taxes are paid in arrears (at the end of the year), meaning the seller owes taxes for days already lived in the property but not yet paid. This creates a seller debit at closing. Knowing real estate math formulas beyond proration strengthens your overall exam performance. Rent proration follows the same logic but uses the monthly rental period instead of the annual tax period.
Rent Proration — Step by Step
Rent proration divides a month’s rent between buyer and seller when a tenant-occupied property closes mid-month. The formula uses three steps.
Step 1 — Find the daily rent: Monthly Rent / Days in Month = Daily Rate
Step 2 — Count remaining days: Closing date through end of month
Step 3 — Multiply: Daily Rate x Remaining Days = Buyer’s Rent Credit
Worked Example
- Monthly rent = $1,500
- Closing date = March 10
- Days in March = 31
Daily rate = $1,500 / 31 = $48.39 per day (rounded)
Remaining days (March 10-31) = 22 days
Buyer’s rent credit = $48.39 x 22 = $1,064.52 (rounded)
The seller already collected the full month’s rent from the tenant, so the seller owes the buyer $1,064.52 for the 22 days the buyer will own the property. This appears as a seller debit / buyer credit on the closing statement. If the exam specifies 30-day months, use 30 instead of actual days in the month. Insurance and HOA prorations use the same daily-rate formula but appear less frequently on the exam.
Insurance and HOA Proration
Insurance and HOA dues are prorated at closing using the same daily-rate formula as property taxes, though they appear less frequently on the real estate exam.
Insurance proration — Annual premium / 365 = daily rate, and the seller gets a refund for the unused portion of a prepaid policy. Example: $1,460 annual premium, closing April 1, seller prepaid for the full year. Unused = 275 days (April 1 through December 31). Daily rate = $1,460 / 365 = $4.00/day. Seller refund = $4.00 x 275 = $1,100.00. Many buyers purchase a new insurance policy at closing rather than assuming the seller’s policy, so insurance proration may not apply in every transaction.
HOA proration — Quarterly or monthly dues / days in period = daily rate, split the same way. Example: $600 quarterly HOA dues (90 days in the quarter), closing on day 40 of the quarter. Seller owes 40 days. Daily rate = $600 / 90 = $6.67/day. Seller’s share = $6.67 x 40 = $266.80. Insurance and HOA proration problems are solved identically to tax proration — the only difference is the billing period (annual, quarterly, or monthly).
Once you calculate each party’s share, the next step is recording it correctly as a debit or credit.
Debit vs Credit — Who Pays What at Closing?
Every prorated amount appears on the closing statement as a debit to one party and a credit to the other — getting the direction wrong is the most common proration mistake on the real estate exam. A debit increases what a party owes (they pay more at closing). A credit decreases what a party owes (they pay less at closing). The mirror rule applies: every seller debit is a buyer credit, and every buyer debit is a seller credit.
| Expense | Typical Scenario | Seller | Buyer |
|---|---|---|---|
| Property Tax (paid in arrears) | Seller lived in property but hasn’t paid yet | Debit (owes) | Credit (receives) |
| Property Tax (paid in advance) | Seller prepaid full year | Credit (refund) | Debit (owes) |
| Rent (collected for full month) | Seller collected but buyer owns remaining days | Debit (owes buyer) | Credit (receives) |
| Insurance (prepaid) | Seller prepaid annual premium | Credit (refund) | Debit (if assuming policy) |
Memory trick: the party who benefited from the expense but hasn’t paid for it gets the DEBIT. Understanding real estate exam terms like debit and credit prevents costly mistakes on proration questions. Now apply everything you’ve learned to these practice problems.
Practice Problems with Solutions
These five proration practice problems progress from basic daily-rate calculations to multi-step exam-style questions. Work each problem before reading the solution.
Problem 1 — Basic Tax (365-Day Method)
Annual property tax = $3,650. Closing date = July 1. Use the 365-day method. Calculate the seller’s share.
Solution: $3,650 / 365 = $10.00/day. January 1 through June 30 = 181 days (31 + 28 + 31 + 30 + 31 + 30). Seller’s share = $10.00 x 181 = $1,810.00.
Problem 2 — Tax (360-Day Method)
Annual property tax = $7,200. Closing date = October 15. Use the 360-day method. Calculate the buyer’s share.
Solution: $7,200 / 360 = $20.00/day. October 15 through December 31 using 30-day months: 15 remaining days in October + 30 days in November + 30 days in December = 75 days. Buyer’s share = $20.00 x 75 = $1,500.00.
Problem 3 — Rent
Monthly rent = $2,100. Closing date = May 18. Days in May = 31. Seller collected full month’s rent. How much does the seller owe the buyer?
Solution: $2,100 / 31 = $67.74/day (rounded). May 18-31 = 14 days. Seller owes buyer = $67.74 x 14 = $948.39 (rounded).
Problem 4 — Insurance
Annual insurance premium = $2,190. Seller prepaid on January 1. Closing date = August 1. How much is the seller’s insurance refund?
Solution: $2,190 / 365 = $6.00/day. Unused days August 1 through December 31 = 153 days (31 + 30 + 31 + 30 + 31). Seller refund = $6.00 x 153 = $918.00.
Problem 5 — Multi-Step (Tax + Rent)
Annual tax = $5,475 (paid in arrears). Monthly rent = $1,800 (seller collected full month). Closing date = June 10. Use the 365-day method for taxes. Calculate the net adjustment between buyer and seller.
Solution:
Tax daily rate = $5,475 / 365 = $15.00/day. Seller’s tax days (January 1 through June 9) = 160 days (31 + 28 + 31 + 30 + 31 + 9). Seller tax debit = $15.00 x 160 = $2,400.00.
Rent daily rate = $1,800 / 30 = $60.00/day. Buyer’s rent days (June 10-30) = 21 days. Seller rent debit = $60.00 x 21 = $1,260.00.
Total seller debit = $2,400 + $1,260 = $3,660.00. This amount is credited to the buyer.
If you solved all five correctly, you are ready for proration questions on the exam. If you missed any, review the step-by-step sections above and retry. For more real estate exam math practice, work through additional problems until daily-rate calculations become automatic. Studying proration alongside other math topics helps you pass the real estate exam with confidence.
Test Your Knowledge — Free Practice Exam
Put your proration skills to the test with our free real estate practice exam, which includes math problems covering prorations, commissions, loan-to-value ratios, and area calculations. The practice exam covers all 50 states with questions modeled on PSI and Pearson VUE formats. You can retake the exam as many times as needed to build confidence. Start your free real estate practice exam now.
This information is for educational purposes. Requirements may change — always verify with your state’s Real Estate Commission.
