Which of the following items are paid in advance?

Which of the following items are paid in advance?

• A. Taxes and insurance
• B. Rents and interest
• C. Insurance and interest
• D. Rents and insurance

Answer: (B)

Prepaid items are costs paid at closing to cover future periods. Rents are paid in advance by the tenant, so when ownership changes hands the buyer ends up responsible for rents coming due after closing, making rent a prepaid item. Interest on the new loan is also paid in advance from the closing date through the end of the month, so it’s another prepaid item. Taxes and insurance are usually handled differently (often paid in arrears or via an escrow account), not as standard prepaid amounts at closing, which is why the pair that fits “paid in advance” best is rents and interest.

Prepaid items are costs paid at closing to cover future periods. Rents are paid in advance by the tenant, so when ownership changes hands the buyer ends up responsible for rents coming due after closing, making rent a prepaid item. Interest on the new loan is also paid in advance from the closing date through the end of the month, so it’s another prepaid item. Taxes and insurance are usually handled differently (often paid in arrears or via an escrow account), not as standard prepaid amounts at closing, which is why the pair that fits “paid in advance” best is rents and interest.