## What are 'Net Proceeds'?

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

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## BREAKING DOWN 'Net Proceeds'

Net proceeds from the sale of a house differ from the sellerâ€™s equity in the home because net proceeds account for the real estate agentâ€™s fee and sellerâ€™s closing costs. When calculating net proceeds on a home sale, the outstanding mortgageÂ or other liens on the property, commission for the sellerâ€™s agent and the buyerâ€™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 mortgageÂ or receive the bankâ€™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 assetâ€™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, consider an investor who purchases \$6,000 in stock and pays a \$24 commission. The stockâ€™s basis is \$6,024. When an asset is inherited, its basis is the fair market value on the date of the personâ€™s deathÂ 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 assetâ€™s net proceeds. Because \$7,968 - \$6,024 = \$1,944, the capital gain is \$1,944.

## Examples of Net Proceeds

In July 2016, Transocean Inc., a fully owned affiliate of offshore drilling company Transocean Ltd., announced its initial public offering of senior unsecured notes worth \$1.25 billion. The notes carry a 9 percent 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 percent senior notes maturing in 2020, 6.375 percent senior notes maturing in 2021 and 3.8 percent 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.

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