Resale Proceeds

Definition

Resale Proceeds refer to the net amount that a previous owner receives from the sale of an asset, such as real estate or stock, after deducting all associated transaction costs, clearing any outstanding debt related to the asset, and sometimes paying income taxes. This term is equivalent to the proceeds from resale.

Examples

1. Real Estate Sale:

   • A homeowner sells their house for $500,000. Assume the transaction costs (e.g., closing fees, realtor commissions) amount to $30,000, and the outstanding mortgage debt is $200,000. The resale proceeds for the homeowner would be $500,000 - $30,000 - $200,000 = $270,000. Further tax implications might apply if the homeowner does not qualify for any exemptions.

2. Vehicle Sale:

   • An individual sells their used car for $15,000. Transaction costs such as advertising, minor repairs, and transfer fees equate to $1,000. If the car was purchased through a loan with $5,000 remaining debt, the resale proceeds would be $15,000 - $1,000 - $5,000 = $9,000.

3. Stock Sale:

   • An investor sells shares of stock for $50,000. Assuming transaction fees charged by the brokerage are $500 and there is no outstanding margin loan or debt, the resale proceeds would be $50,000 - $500 = $49,500. Additionally, capital gains taxes might need to be settled based on the profit earned.

Frequently Asked Questions

What are transaction costs in the context of resale proceeds?

Transaction costs include all the fees and expenses directly associated with the sale of an asset, such as real estate agent commissions, legal fees, advertising costs, and administrative costs related to transferring ownership.

Are taxes always deducted from resale proceeds?

Taxes may be deducted from resale proceeds depending on the specific tax laws applicable to the asset and seller. In some cases, capital gains tax or other applicable taxes might need to be considered.

How does outstanding debt affect resale proceeds?

Outstanding debt related to the asset being sold must be settled using the sale’s gross proceeds. The resale proceeds represent the remaining amount after this debt and any transaction costs are paid off.

Can resale proceeds be negative?

In rare cases, resale proceeds can be negative if the costs and debts associated with the asset exceed the gross sale price.

Do resale proceeds apply only to real estate?

No, resale proceeds can apply to any sold asset, including vehicles, stocks, businesses, and personal property.

Related Terms

• Transaction Costs: Fees and expenses directly related to completing a transaction, such as commissions, closing costs, and legal fees.
• Net Proceeds: The amount of money received from a sale after all costs and expenses have been deducted.
• Capital Gains Tax: A tax on the profit realized from the sale of a non-inventory asset.
• Outstanding Debt: The remaining amount of debt that is yet to be paid off, often considered during the resale of a financed asset.

Online References

• Investopedia: Proceeds
• Wikipedia: Proceeds
• IRS: Capital Gains and Losses
• National Association of Realtors
• Edinburgh Business School MBA: Financial Modelling

Suggested Books for Further Studies

• “Real Estate Finance & Investments” by William Brueggeman and Jeffrey Fisher
• “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen
• “Investment Analysis and Portfolio Management” by Frank K. Reilly and Keith C. Brown
• “Valuation: Measuring and Managing the Value of Companies” by McKinsey & Company Inc., Tim Koller, Marc Goedhart, and David Wessels

Fundamentals of Resale Proceeds: Finance and Real Estate Basics Quiz

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