Does the net profit from sale of a home include the original cost?
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Does the net profit from sale of a home include the original cost?
My divorce decree states that my ex-husband
gets 50 of the net profit when our home sells.
He had signed a quit claim deed at the time of
the divorce. It is 4 years later and I am ready
to sell. I believe that I can deduct the
original cost of the home but I am getting
conflicting information regarding net proceeds
because the mortgage has been paid off. Can you
please clarify the difference between net
profit and net proceeds on the sale of a home?
Asked on March 6, 2019 under Family Law, Washington
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 5 years ago | Contributor
Net proceeds is the gross amount you receive less any costs, mortgages, or liens paid.
Net profit is the gain in money or equity, which means the gain above the initial cost (after taking out costs, mortgages, etc.).
Example: you bought a home for $200k. You can sell it for $300k. There is no mortgage, but lets assume that the costs of sale (including the realtor fee, etc.) is 7% of the sale price, or $21k.
The net proceeds is $279k: the $300k less the 7% in costs.
The net profit is $79k: you take the $21k in costs out, then the profit is the gain over the original sale price (so $279k after costs - $200k original price), the same way that if a store buys some goods for $10 and sells them for $22, the profit is $12.
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