If prior year taxes of $1,854 are owed by the seller, what impact does this have during closing?

When prior year taxes are owed by the seller, it results in a debit on the settlement sheet, reflecting that the seller has an outstanding financial obligation. During the closing process, all debts and credits associated with the transaction are accounted for to ensure a fair distribution of costs between the parties involved.

In this scenario, the seller's owed tax of $1,854 is considered a liability that must be settled before the transaction can conclude. Consequently, this amount is recorded as a debit against the seller’s proceeds from the sale. The goal is to ensure that the buyer is not responsible for debts incurred by the seller prior to the sale.

This treatment helps clarify the financial responsibilities associated with the property, as the seller must fulfill all obligations, including taxes owed from prior years, before transferring ownership to the buyer. The accurate accounting for such taxes is a key aspect of real estate closings, ensuring that buyers are protected from inheriting any outstanding debts related to the property.