Need to Calculate Home Sale Proceeds?

Current homeowners are debating if now is the right moment to list their house for sale given the protracted seller's market that the U.S. housing market has been in. One major issue that those who decide to sell could have is, "How much money can I anticipate to clear on the sale of my house?"

What are home sale proceeds?

If you've been following the real estate market lately, you are aware that there are fewer homes on the market and that homeowners are receiving many offers that are far more than the asking price. Of course, you'll want to know how much money you can make from the sale of your house if you're thinking about doing so.

When getting ready to buy a new house, for tax purposes, or if you're an investor selling an investment property, figuring out your sale proceeds is crucial. But it's not as simple as deducting your original purchase price from the final sales price. Unless you've already done so, you'll need to pay off your present mortgage, and selling the house will cost you a lot of money.

Here are all the things you'll need:

There is no need for a sophisticated house selling calculator to figure out net proceeds. Basically, you just need to deduct all the expenses from the house's sale price:

Net proceeds are the sum of the home's sale price, the amount of the mortgage paid off, and any expenses.

For the estimate to be accurate, each of these crucial components must be taken into account:

The price the buyer has agreed to pay you for your home is known as the home sale price.

Paying real estate agents fees: The commission for both the buyer's agent and the seller's agent is covered by the seller. Normally, the agents divide a total compensation of 5 to 6 percent of the sale price of the residence.

The price of preparing a house for sale: You're likely to spend money staging your property, whether it's on a cleaning staff or some decorative pillows. Make sure to account for this expense.

Costs of home repairs before selling: Will you perform any renovations or repairs to the house before you put it on the market? These expenses must be taken into account.

Seller concessions: When you sell your house, you and the buyer could decide to split the costs, usually at closing.

Home ownership costs overlap: You can come across a situation where you are the owner of both the home you recently purchased and the one you are attempting to sell.

Closing expenses: The price of title insurance, transfer tax, and escrow funds are often included in closing fees.

Amount due on a mortgage: This is how much you owe on your current mortgage.

To calculate your net proceeds from the sale, take your home’s sale price and subtract your other costs. Let’s map out an example with some actual numbers:

Home sale price:?$300,000

Commissions paid:?$15,000

Cost spent on staging:?$1,500

Cost spent on repairs/improvements:?$5,000

Closing costs:?$9,000

Mortgage payoff amount:?$135,000

Here it is with the numbers plugged in:

$300,000???($15,000 + $1,500 + $5,000 + $9,000 + $135,000) = $134,500

So, in this example, your home sale proceeds equals $134,500.

How to Calculate Capital Gains Tax When Selling a Home

The next consideration is whether capital gains taxes need to be paid on the house sale proceeds after we've computed the proceeds. The tax on asset appreciation that is paid is known as capital gains tax. Let's continue this illustration by examining if you'll have to pay taxes on your earnings.

Relative Cost Basis

We need to know the owner's original purchase price for the home and whether any renovations have been made in order to determine whether capital gains taxes are required.

Suppose you paid $200,000 for your home. Let's also say that you invested $50,000 in capital renovations for the house.

With this knowledge, the computation is easy to perform:

Capital upgrades plus the purchase price equal $250,000 ($200,000 + $50,000).

This means that, for tax purposes, the appreciation subject to capital gains is:

???????????Sales price ? adjusted cost basis = $300,000 ? $250,000 = $50,000.

A Primary Residence Exclusion

Is there a capital gains tax due from this homeowner? If this is their principal residence, which is widely understood to be the location where the owner has primarily lived for 2 out of the last 5 years, then probably not. To ensure you adhere to all regulations involving the sale of your house, consult your tax expert.

The sale of a primary house can result in a lifetime capital gains exclusion of up to $250,000 (or $500,000 for married couples filing jointly). Assume that the owner is unmarried, has been a resident of the property for the past three years, and complies with all other IRS standards. Their lifetime exclusion of $50,000 will be used, and they won't owe any capital gains tax.?When they sell their next home, they will have $200,000 of the exclusion available to them.?

FAQs about Home Sale Calculation

Here are some often asked issues and areas of uncertainty regarding real estate sale revenues:

Are Net Proceeds and Capital Gains the Same Thing?

The quick response is no. Real estate capital gains happen when you buy a house and sell it for more money later. Let's examine the scenario we dissected earlier. Let's imagine that we spent $175,000 to buy the house and $20,000 to sell it. The investment has a capital gain of $25,000 on it.

This is distinct from the net proceeds, which represent the price you received for your house after deducting expenses. A different formula might be used if you're flipping the house.

What if the house I'm selling is a getaway property?

You'll undoubtedly owe capital gains tax if the house you're selling isn't your principal residence. Using the same $50,000 in taxable capital gains from the previous example, the owner would be subject to a tax rate of 0 percent, 5 percent, or 20 percent, depending on their tax bracket.

One tactic, however, that owners of two or more properties frequently use is to sell one of the homes as their primary residence first, then move into the secondary home for two of the following five years, making it their primary residence, and then use the remaining exclusion when they sell the vacation home.

Another tactic to take into account is treating the vacation house like an investment property and renting it out. When it comes to delaying capital gains, investors also have further options.

If the house I'm selling is a rental, what happens?

Selling investment property does not qualify for a capital gains exclusion. Investors can, however, think about using a Section 1031, or like-kind, exchange to permanently postpone paying capital gains taxes. This means that taxes are postponed until the second investment property is sold or, in the event of the investor's death, the investor's heirs inherit the property at its fair market value. This applies when an investor sells an investment property and uses the proceeds to buy another investment property. Due to this step-up in basis, the heirs will have relatively low tax duty if they sell the property.

Exchanges under Section 1031 can be challenging and are subject to rigorous deadlines. To ensure that you adhere to IRS laws, it is advisable to work with your tax advisor.

What Is Depreciation Recapture and How Is It Different From Capital Gains?

Recapture of depreciation takes place when an investment or rental property is sold. You can write off any depreciation on your taxes if your property loses value. The property loses value over time, and the IRS tracks this loss of value each year. This is known as the "adjusted cost basis."

The IRS compels you to pay a depreciation recapture rate on the sale of your property if you sell it for more than the adjusted cost basis. If you sell the property for more than you originally paid for it, you'll probably also have to pay capital gains tax on top of the depreciation recapture.

Are net revenues and profit the same thing?

Not at all, no. Profit refers to further deductions, whereas net proceeds refers to the total revenue after deducting your closing costs. Your profit is estimated by deducting additional expenditures, such as labor, shipping, and financial fees, from your net revenues. Profit is never greater than net proceeds or equal to them.

The Verdict: Tax planning is Required to Maximize Your Home Sales Proceeds

It's crucial to understand how to calculate your net proceeds whether you're flipping a house or selling a residence you've owned for years. Without accounting for taxes, gains can result in a hefty tax burden.

Not at all, no. Profit refers to further deductions, whereas net proceeds refers to the total revenue after deducting your closing costs. Your profit is estimated by deducting additional expenditures, such as labor, shipping, and financial fees, from your net revenues. Profit is never greater than net proceeds or equal to them.

Summary

It's crucial to understand how to calculate your net proceeds whether you're flipping a house or selling a residence you've owned for years. Recall that net proceeds equals the sale price of your house less costs associated with selling it, such as real estate agent commission and mortgage repayment.

Understanding the distinction between net proceeds, capital gains, and profit when selling investment properties is crucial to managing your business. Research the tax repercussions of capital gains and property depreciation as well.