What are 'Net Proceeds'

Net proceeds is the amount received by the seller after all costs and expenses are deducted from the gross proceeds arising from the sale of an asset. Depending on the asset sold, such costs may account for a marginal percentage of the gross proceeds or a substantial percentage of the gross proceeds. Capital gains taxes are generally paid only on the net proceeds of a sale, rather than the gross proceeds.

BREAKING DOWN 'Net Proceeds'

Net proceeds from selling a house differ from the seller’s equity in the home because net proceeds account for the real estate agent’s fee and seller’s closing costs. When calculating net proceeds on a home sale, the outstanding mortgages or other liens on the property, commission for the seller’s agent and for the buyer’s agent, excise tax and other closing costs owed by the seller are subtracted from the gross sale price of the home. If negative net proceeds result, the seller must provide cash at the time of closing to pay off the mortgages or receive the bank’s approval for a short sale.

Net Proceeds and Capital Gains Taxes

Income from selling stocks, mutual funds, property or other assets is reported on a personal or corporate tax return. Taxes are paid on the asset’s capital gains rather than on its selling price.

When calculating capital gains or losses, the amount paid to acquire the asset, called its basis, must be known. For example, an investor purchases $6,000 in stock and pays a $24 commission. The stock’s basis is $6,024. When an asset is inherited, its basis is the fair market value on the date of the person’s death, regardless of the amount paid for the asset. Net proceeds must be calculated as well. For example, the same investor sells the stock for $8,000 and pays a $32 commission. The net proceeds are $7,968. The basis is subtracted from the asset’s net proceeds. Because $7,968 - $6,024 = $1,944, the capital gain is $1,944.

Examples of Net Proceeds

In January 2015, Brandywine Realty Trust announced the sale of two office properties and a hotel. After closing costs and transaction costs, net proceeds from the office properties totaled $35.9 million. After debt repayment, transaction costs and holdbacks, net proceeds from the hotel totaled $6.1 million. Total net proceeds were expected to fund current development commitment, reduce debt and cover general corporate purposes.

In July 2016, Transocean Inc., a fully owned affiliate of offshore drilling company Transocean Ltd., announced its initial public offering (IPO) of senior unsecured notes worth $1.25 billion. The notes carry a 9% interest rate and mature by 2023. After subtracting purchase discounts and offering costs, net proceeds are anticipated to be approximately $1.21 billion. Part of the net proceeds will be used for purchasing 6.5% senior notes maturing in 2020, 6.375% senior notes maturing in 2021 and 3.8% senior notes maturing in 2022 for up to $1 billion in cash. Part of the net proceeds will also be used for refinancing debt and for general company activities.

RELATED TERMS
  1. Insurance Proceeds

    The benefit proceeds paid out by any type of insurance policy ...
  2. Cash Collateral

    Cash collected when liquid assets are sold during Chapter 11 ...
  3. SEC Form 2-A

    A filing with the Securities and Exchange Commission (SEC) required ...
  4. Net Sales

    The amount of sales generated by a company after the deduction ...
  5. Bankruptcy Trustee

    A person appointed by the United States Trustee, an officer of ...
  6. Return On Net Assets - RONA

    A measure of financial performance calculated as: Fixed assets ...
Related Articles
  1. Investing

    Calculating Return on Net Assets

    Return on net assets measures a company’s financial performance.
  2. Managing Wealth

    What Does Liquidation Mean?

    Creditors liquidate assets to try and get as much of the money owed to them as possible.
  3. Investing

    The Difference Between Gross and Net Profit Margin

    To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.
  4. Investing

    What is Net Margin?

    The ratio of net profits to revenues for a company that shows how much of each dollar earned by the company is translated into profits.
  5. Taxes

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
  6. Managing Wealth

    Assets That Increase Your Net Worth

    Your home, properties and vehicles can all increase your net worth.
  7. Investing

    Calculating Net Cash

    A company’s net cash is its total cash remaining after it subtracts all liabilities.
  8. Investing

    Profit Metrics: Gross, Operating & Net Profits

    In addition to net profit, most analysts look at a company’s gross profit and operating profit to gauge performance.
  9. Investing

    Purchasing A Short-Sale Property

    If you are looking for a good deal and have time to wait, a short-sale house may be for you.
  10. Investing

    Net Sales

    Net Sales is an accounting term used to analyze a company's performance. It is the sales revenue that remains after deducting for product returns, damaged or missing products, and discounts. ...
RELATED FAQS
  1. Does a company have to notify its investors when it faces legal proceedings?

    Not necessarily. The SEC guidelines do not require businesses to publicize legal proceedings if these proceedings are a part ... Read Answer >>
  2. If I short sell $5,000 worth of stock and the stock becomes worthless, I have made ...

    The simple answer is that the maximum return of any short sale investment is in fact 100%. However, the concepts underlying ... Read Answer >>
  3. What are the differences between gross profit and net income?

    Find out how companies determine gross profits and net income, and how these figures provide quick snapshots of their financial ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center