Today, I want to talk to you about the difference between gross proceeds and net proceeds.
Many times, estates hire me to sell a home. When that happens, the amount it sells for is a lot different than the amount received. How much money do you really end up with if, say, I sell the home for a million dollars?
There are some key benchmarks that you should be mindful of here. The good news is that for a long time now, the estate tax limit has been very high—over $5 million. Now, that’s subject to change, but, generally speaking, there’s no tax on money transferred for an estate under $5 million dollars.
"Net proceeds refer to how much the seller makes after all expenses are deducted from the gross proceeds."
Net proceeds refer to how much the seller makes after all expenses are deducted from the gross proceeds. These fees are the ultimate difference between net and gross proceeds, and they include:
- Long-term capital gains tax. This is a tax on the profit gained from the sold property. It fluctuates depending on Congress, but it has typically been around 15%, sometimes as low as 8%. You might also have a city and state long-term capital gains tax. As of 2016, depending on your tax bracket, that was roughly a 28% total between city, state, and federal long-term capital gain taxes.
- Your real estate broker. Brokers often take a 6% commission.
- Additional taxes. Some buildings and areas have additional taxes such as a flip tax, which could be anywhere between 2% and 25% of the profit.
There are many ways to minimize your outflow and maximize your inflow. When I work with sellers, I do a net closing sheet, which will help spell out your net proceeds for you. Each situation is different, so we can discuss that together when we sit down and talk about selling your home.
If you have any other questions about this topic or any other real estate subject, please don’t hesitate to reach out to us. I can refer you to the top financial planners, accountants, and attorneys who can give qualified advice on this question. In the meantime, I can give you a general idea of how much you’ll make when you sell your home. I look forward to hearing from you.