Final Closing Statement
You may think that the most valuable piece of paper you get when closing is your check for the proceeds of sale. From an accounting standpoint, however, the most precious piece of paper is the final closing statement. If you think of the closing as a checking account, the final closing statement is your checkbook. It records all the money related to your transaction either as credits or debits.
Any money that you receive during closing is shown as a credit to your account. You won't have many credits; the biggie is always your credit for the amount of the sale price. You may get a credit from the buyers for the unused portion of property taxes you prepaid. You get a check from your insurance company for any unused portion of your homeowners insurance premium. By the same token, if your lender collects extra money from you each month that goes into an impound account used to pay your property taxes and homeowners insurance premiums, any excess funds in the impound account are paid directly to you by the lender after the sale closes.
Debits are funds paid out during closing on your behalf. Your biggest debit is usually the mortgage payoff. Other major closing costs listed as debits are the real estate commission, local transfer taxes, any corrective work credits you give the buyers, and, depending on the date the sale closes, a credit to the buyer for your share of unpaid property taxes. The list also includes an assortment of small charges for notary fees, recording fees, document preparation fees, messenger fees, and so on.
The final closing statement is extremely important. Be sure to keep a copy for your files; you'll want to refer to it when you prepare your income tax return. Some expenses of sale (such as the real estate commission, mortgage prepayment penalties, and property tax payments) are tax deductible. Furthermore, you may owe capital gains tax on any profit you made from selling the property.