Net Proceeds
Candlefocus EditorNet proceeds are often a determining factor for when and how a sale is completed. The payoff may be an immediate up-front cash amount, or spread out over time by using a financing agreement. In any case, the amount remaining after expenses is factored into the price being offered for any sale of property.
For example, if a house is sold for $400,000, after closing costs and real estate commission have been deducted, the net proceeds could be substantially less. This could be the case if the seller incurred cost for repairs, or had to pay off a lien or mortgage on the property prior to sale.
Net proceeds are important information to consider when buying or selling an asset. For sellers, it is a reality check. It gives them a better understanding of how much they will receive after the sale, once expenses have been subtracted. For buyers, it gives them a better understanding of what the seller’s actual return on the sale may be.
Taxes on net proceeds must also be taken into consideration. Capital gains tax is generally calculated as a percentage of the net profit made on the sale. That means, the higher the net proceeds, the higher the capital gains tax that may be due from the seller. As such, careful consideration should be taken when estimating the net proceeds of a sale.
In conclusion, net proceeds are the money left over after all costs, fees, and taxes associated with selling an asset have been deducted from the gross sale amount. Knowing the potential net proceeds allows both buyers and sellers to make more informed decisions when preparing to buy or sell an asset.