Sales Proceeds are the actual proceeds from selling any real estate asset, after deducting any cost required to sell the real estate property. The cost for selling the property includes commissions and legal fees. The value is further deducted by the amount of any debts occured in the real estate asset.
Sales proceeds or precedes is the amount of cash that a company or investor receives upon selling goods or assets for a specified time period. Proceeds are similar to profits, but not the same as proceeds are calculated from the sale of a specific good or services or assets.
It is important to calculate proceeds from each type of sale as it helps to determine which asset or product is bringing in more cash. There are two types of proceeds — net proceeds and gross proceeds. The difference between the two is the inclusion and deduction of expenses. While gross proceeds is the total amount of the sale inclusive of all expenses, net proceeds deducts these expenses and produces an amount.
Gross proceeds is the total amount that a business or individual receives from the sales of a particular asset, product or service. This amount is recorded as gross proceeds which includes any expense incurred during the transaction such as production cost, commision paid to agent for a real estate asset or broker’s fees in case of sale of bonds or stocks.
On the other hand, net proceeds is the amount that the business or individual receives after deducting all costs and expenses incurred in the transaction. This amount can be calculated by deducting expenses from the gross amount. The net amount is what goes to the owner of the asset and can be considered as his income. Furthermore, capital gains taxes are paid on net proceeds and not the gross proceeds.
The easiest way to calculate net proceeds is to take the entire gross proceeds amount and deduct the expenses incurred. These expenses include the fee paid to the real estate agent for sale of the asset, deferred taxes, and debt on the property. So, it can be said:
Net proceeds = Amount from sale of asset - Expenses & cost incurred during the transaction
To understand this concept better, let us take an example. Suppose Mr. Hemingway sells his house for $100,000. In this, he has to give $1000 to the realtor, he incurred $100 in traveling expenses and $500 in advertisement. Furthermore, the outstanding debt on the property was $20,000. Here, the net proceeds can be calculated as:
Net proceeds = 100,000 - (1000 + 100 + 500 + 20,000) = 100,000 - 21,600 = 78,400
Therefore, net proceeds = 78,400
Sales proceeds is an important metric that calculates the cash flow from a specific sale. This is used by individuals and businesses alike to determine the profitability from each sale. The further division of gross proceeds and net proceeds allows them to calculate the amount they will have to pay in capital gains taxes after deducting all the expenses and costs from the gross proceeds. It is important for everyone to carefully calculate these so as to determine the ideal amount they will need to pay in capital gains taxes and determine the profitability from an asset.