When you sell a house, the money goes to your mortgage lender first, then to agents, the closing agent, the county, and the tax collector, with whatever is left wired to you after the deed is recorded. The exact breakdown lives on your Closing Disclosure, the line-by-line settlement document that replaced the old HUD-1 for most residential sales.1Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs The contract price never lands in your account as one check. It passes through the closing agent, who subtracts every obligation attached to the property before cutting you a wire or cashier’s check for the remainder, called your net proceeds.
Your Mortgage Payoff Comes Out First
The single largest deduction is almost always what you still owe on the home. Before closing, your lender issues a payoff statement showing the exact amount needed to clear the loan, including interest accrued through the expected closing date. The closing agent wires that amount directly to the lender once the buyer’s funds arrive, which satisfies the lien and releases the mortgage deed for recording at the county.
A home equity line of credit or second mortgage is handled the same way, with a separate payoff figure and the account frozen so no new draws occur before payoff. Other recorded claims against the property come off the top too: contractor liens for unpaid work, federal tax liens, judgment liens. The buyer takes clean title, which means every recorded claim gets paid at the table.
Prepayment Penalties
Some older or non-standard mortgage contracts charge a fee for paying the loan off early. Federal rules cap these penalties at 2% of the outstanding balance during the first two years of the loan and 1% in the third year, and bar them entirely after that.2Consumer Financial Protection Bureau. Ability-to-Repay and Qualified Mortgage Rule Small Entity Compliance Guide Most mortgages written since 2014 either ban the penalty outright or limit it sharply, and FHA-insured loans closed after January 21, 2015 cannot carry one at all.3Federal Register. Federal Housing Administration (FHA) Handling Prepayments Eliminating Post-Payment Interest Charges If yours does include one, it will appear on the payoff statement.
Agent Commissions
Commission is typically the second-largest line. For decades, sellers paid a combined commission covering both their listing agent and the buyer’s agent, usually in the 5% to 6% range. That changed after the 2024 National Association of Realtors settlement. Offers of buyer-agent compensation can no longer be advertised through the MLS, and buyers now negotiate their own agent’s fee separately, often through a written buyer-broker agreement.
You still pay your own listing agent’s commission out of proceeds. You may also choose to offer compensation to the buyer’s agent as a negotiating tool, but you are not required to. If you do, that amount is spelled out in your listing agreement and deducted alongside your listing agent’s fee. The national average total commission sat around 5.5% in late 2025, though the seller’s share depends on what the two sides negotiated.
Closing Costs and Professional Fees
A set of smaller professional and administrative fees comes off the proceeds too. The exact mix depends on your state and the complexity of the sale.
- Title insurance for the buyer. In many markets the seller pays for the owner’s policy, which runs roughly 0.5% to 1% of the purchase price. On a $350,000 home that is about $1,750 to $3,500.
- Escrow or settlement fees charged by the closing agent for handling funds and documents, usually $500 to $1,500.
- Attorney fees in states that require a closing attorney, generally $500 to $3,500 depending on complexity.
- County recording fees for the deed transfer and lien releases, which vary by jurisdiction and are generally modest.
- Document preparation and notary fees. Notary charges range from a few dollars to $25 or more per signature, depending on your state.
Transfer Taxes and Prorated Bills
Most states and many cities charge a transfer tax when the property changes hands. Rates range from around 0.1% of the sale price in some states to more than 2% in others, with some cities layering a surcharge on top. A handful of states charge none. Your closing agent calculates the amount from your location and sale price and deducts it at closing.
Property taxes get prorated to the day. Because the bill is typically paid in arrears, you owe the share covering the portion of the tax period you still owned the home. Close on April 1 on a calendar-year bill and you owe about three months. The closing agent subtracts that amount and credits it to the buyer, who pays the full bill when it arrives.
HOA dues work the same way. Pre-paid dues come back to you as a credit for the unused portion. Unpaid dues are deducted from your proceeds so the association does not place a lien on the property.
Seller Concessions
In some deals, the seller agrees to cover part of the buyer’s closing costs as a negotiating tool to hold the agreed price. These credits appear on the Closing Disclosure as a reduction to your net proceeds. Common examples are repair credits or paying a portion of the buyer’s origination fees. The amount you can offer is capped by the buyer’s loan program, and whatever you credit comes straight out of your cash at closing.
When You Owe More Than the House Sells For
If your mortgage balance is larger than the sale price, you walk away with nothing and may still owe money. In a short sale, the lender agrees to accept less than the full payoff. Depending on the lender’s terms, you may remain on the hook for the difference. A short sale needs lender approval before the deal can close and moves much more slowly than a standard sale. If you suspect the home is worth less than you owe, talk to your lender and a real estate attorney before listing.
Capital Gains Tax Hits Later, Not at Closing
Everything above comes off at the closing table. Capital gains tax is different: it shows up when you file your federal return for the year of the sale. Factoring it in now helps you see your true take-home number.
The Primary Residence Exclusion
If the home was your primary residence, you can exclude up to $250,000 of profit from your income, or $500,000 if you file jointly with your spouse. To qualify, you must have owned the home and lived in it as your main residence for at least two of the five years before the sale.4Internal Revenue Service. Topic No. 701, Sale of Your Home The two years do not need to be consecutive. Many sellers owe no federal capital gains tax because their profit fits inside this exclusion.
How the Gain Is Calculated
Taxable gain is not just sale price minus purchase price. Start with your original cost basis, which is what you paid for the home plus certain settlement costs from the purchase. Add the cost of capital improvements made during ownership, such as a new roof, kitchen renovation, or room addition.5Internal Revenue Service. Publication 551, Basis of Assets Subtract selling expenses like agent commissions and transfer taxes. The exclusion then applies to whatever profit remains.
Rates on Profit Above the Exclusion
If profit exceeds the exclusion, the excess is taxed at long-term capital gains rates provided you owned the home for more than a year. For most sellers that rate is 15%. It drops to 0% in lower income brackets and rises to 20% for high earners.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses An additional 3.8% net investment income tax applies if your modified adjusted gross income exceeds $200,000 single or $250,000 married filing jointly, though gain already excluded under Section 121 is not subject to this surtax.7Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
Form 1099-S Reporting
The closing agent generally reports the sale to the IRS on Form 1099-S. If you certify that the home was your principal residence and your full gain is excludable, meaning the sale price is $250,000 or less, or $500,000 or less for married sellers, the agent is not required to file the form.8Internal Revenue Service. Instructions for Form 1099-S Proceeds From Real Estate Transactions Even without a 1099-S, keep records of your cost basis and improvements in case the IRS questions the exclusion.
If You’re Not a U.S. Person: FIRPTA Withholding
If you are a foreign seller, the closing agent is required to withhold 15% of the gross sale price under the Foreign Investment in Real Property Tax Act and send it to the IRS.9Internal Revenue Service. FIRPTA Withholding This is a prepayment, not the final tax. You file a U.S. return afterward, calculate the real tax, and the IRS refunds any excess. Exceptions can reduce or eliminate withholding, including sales of $300,000 or less where the buyer intends to use the home as a personal residence.10Internal Revenue Service. Exceptions From FIRPTA Withholding
How You Actually Get Paid
Once every lien, fee, tax, and credit is settled, the closing agent calculates the final number on your Closing Disclosure. Disbursement happens after the new deed is recorded with the county. You can take the funds as a wire transfer or a cashier’s check. For a wire, you give your bank’s routing number and account number to the closing agent before the closing date.
Watch for Wire Fraud
Real estate wire fraud is a serious risk. Scammers monitor email traffic around upcoming closings and send fake messages impersonating the closing agent or your real estate agent, with altered wire instructions. Money sent to a fraudulent account is extremely hard to recover. Verify all wiring instructions by calling the closing agent at a phone number you obtained independently, not one pulled from an email. Reputable title companies confirm wire details by phone or through secure portals rather than email.
Review Before You Sign
Before disbursement, you sign the Closing Disclosure confirming every line item. Read each deduction carefully: the mortgage payoff, the commission split, prorated taxes, HOA adjustments, title and settlement charges. This is the last practical chance to catch an error. Once the deed is recorded and the funds move, the sale is done and the net proceeds are yours.