# How To Calculate Home Sale Proceeds (Without A Calculator)

UPDATED: May 23, 2023

Current homeowners are looking at the prolonged seller’s market that the U.S. housing market has been in and wondering if now’s the time to jump in and sell their home. Those who decide to sell may find themselves asking one big question: “How much money can I expect to clear on the sale of my house?”

## What Are Home Sale Proceeds?

If you’ve been paying attention to the current real estate market, you know that housing inventories are down and sellers are fielding multiple offers well over asking price for their homes. Of course, if you're considering selling your home, you’ll want to know how much you can profit from the sale.

Calculating your sale proceeds is important as you prepare for buying a new home, for tax purposes or if you're an investor selling an investment property. However, it’s not just a simple matter of subtracting what you paid for your home from your ultimate sales price. You’ll have to pay off your current mortgage, unless you already have, and you’ll incur the substantial costs of selling the house.

Let’s look at all you’ll need to consider when evaluating how much cash you’re likely to walk away with.

Work with a real estate agent who knows your local market.

## How To Calculate The Net Proceeds From A Sale

Calculating net proceeds doesn’t require a complicated home sale calculator. Basically, you just need to subtract all the costs from the sale price of the home:

Sale price of the home − mortgage payoff amount − costs = net proceeds

Each of these key parts need to be factored in to have an accurate calculation. Include the following:

• Home sale price: This is the price the buyer has agreed to pay you for your home.
• Fees paid to real estate agents: As the seller, you pay the commission for both the buyer’s agent and the seller’s agent. The total commission is typically 5 – 6% of the home sale split between the agents.
• Cost of staging the home for sale: Whether it’s hiring a cleaning crew or investing in some throw pillows, chances are you’ll spend some money staging your home. Make sure to factor this cost in.
• Costs of repairs to sell home: Will you make any repairs or improvements to the home before selling it? These costs need to be considered.
• Seller concessions: When you sell your home, you may agree with the buyer to pay a portion of their expenses, typically at closing.
• Cost of a home ownership overlap: You may experience a scenario where you own both the house you just bought and the house you’re trying to sell.
• Closing costs: Closing costs typically include costs of title insurance, transfer tax and escrow money.
• Mortgage payoff amount: This is the amount you still owe on your current

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.

## Calculating Capital Gains Tax On A Home Sale

Now that we’ve calculated the home sale proceeds, the next question is whether capital gains taxes are owed on those proceeds. The capital gains tax is the tax paid on the appreciation of an owned asset. Let’s continue this example by considering whether you’ll face a tax bill on your proceeds.

To figure out whether there are capital gains taxes owed, we need to know how much the owner paid for the house and whether they’ve renovated.

Let’s assume you bought your house for \$200,000. Let’s also assume that you completed capital improvements to the home totaling \$50,000.

With this information, the calculation is very straightforward:

Purchase price + capital improvements = \$200,000 + \$50,000 = \$250,000

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

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

### The Exclusion For A Primary Residence

Does this homeowner owe capital gains taxes? Probably not, if this is their primary residence, generally defined as the place where the owner has primarily lived for 2 out of the last 5 years. Check with your tax advisor to make sure you follow all the rules regarding the sale of your home.

Tax law includes a lifetime exclusion of \$250,000 (or \$500,000 for married couples filing jointly) of capital gains on the sale of a primary residence. Let’s assume this owner is single, has lived in the home for the last 3 years and meets all other IRS requirements. They’ll use \$50,000 of their lifetime exclusion and pay no capital gains tax. When they sell their next home, they will have \$200,000 of the exclusion available to them.

## Home Sale Calculation FAQs

Here are some common questions and points of confusion around home sale proceeds.

### Are Capital Gains The Same As Net Proceeds?

The short answer is no. Capital gains in real estate occur when you buy a home and sell it later for a higher price. Let's take a look at the example we broke down above. Say we originally bought that home for \$175,000, then sold it for \$200,000. The capital gains on the investment here is \$25,000.

This differs from the net proceeds which is the amount you sold your home for, minus your costs. If you're flipping the house, you may use a different formula. For that breakdown, read the next question.

### What If The Home I’m Selling Is A Vacation Home?

If the home you’re selling is not your primary residence, you’ll probably owe the capital gains tax. Going back to our example above, the owner would have to pay either 0%, 5% or 20% on their \$50,000 of taxable capital gains, depending on their tax bracket.

However, one strategy that owners of two or more homes often utilize is to sell a primary residence first, and then move into the secondary residence for 2 of the next 5 years, making it their primary residence and then using what’s left of their exclusion when they sell their vacation home.

Another strategy to consider is renting out the vacation home and treating it as an investment property. Investors have additional options when it comes to deferring capital gains.

### What If The Home I’m Selling Is An Investment Property?

There is no capital gains exclusion on the sale of investment property. However, investors can consider using a Section 1031, or like-kind, exchange to defer capital gains taxes indefinitely. This means that when an investor sells an investment property and use the proceeds to buy another investment property, taxes are deferred until the second property is sold, or if the investor dies, their heirs inherit the property at its fair market value at the time of the investor’s death. If the heirs sell the property, they’ll incur very little in tax liability because of this step-up in basis.

Section 1031 exchanges can be complicated and must conform to a strict timetable. It’s best to work with your tax professional to make sure you comply with IRS regulations.

### What Is Depreciation Recapture, And Does It Differ From Capital Gains?

Depreciation recapture occurs on the sale of an investment or rental property. If your property goes down in value (depreciates), you can deduct it on your taxes. Each year the property depreciates, the IRS records its loss of value and calls this the “adjusted cost basis.”

If you sell your property at a higher price than the adjusted cost basis, the IRS requires you to pay a depreciation recapture rate on the sale. If you sell at a higher price than what you paid for the property, you’ll likely have to pay capital gains tax on top of the depreciation recapture.

### Are net proceeds the same as profit?

No, they aren’t. While net proceeds refers to the total revenue after you subtract your costs of selling the home, profit refers to further subtractions. After you determine your net proceeds, your profit is calculated by subtracting other costs, like labor, transportation and financial fees. Profit is always less than or equal to net proceeds.

## The Bottom Line: Maximizing Your Home Sales Proceeds Requires Some Tax Planning

Whether you’re selling a home you’ve had for years or you’re flipping a house, it’s important to know how to calculate your net proceeds. Looking at profits without taking taxes into account can land you a big tax bill.

## Summary

Whether you’re selling a home you’ve had for years or you’re flipping a house, it’s important to know how to calculate your net proceeds. Remember, net proceeds is the sale price of your home, minus the expenses to sell, like real estate agent commission and your mortgage payoff.

If you’re selling investment properties, understanding the difference between net proceeds, capital gains and profit is essential to running your business. You also need to research the tax implications of capital gains and property depreciation.

Want to learn more about homeownership or real estate investment? Explore more articles like this on the Rocket Homes® blog.

#### Andrew Dehan

Andrew Dehan is a professional writer who writes about real estate and homeownership. He is also a published poet, musician and nature-lover. He lives in metro Detroit with his wife, daughter and dogs.

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