Receiving an inheritance often comes with a lot of conflicting emotions. You also have a lot of decisions to make about what to do with that inheritance. If you inherit a house, this is no exception.
You might ask yourself “can I sell an inherited house?” Others will wonder how to sell an inherited house fast.
You have options when you inherit a house. However, most people will choose to sell that house.
Read on to learn what to expect when selling an inherited house.
How Many People Are Inheriting?
If you’re the sole inheriter, then this part is much less complicated for you. This means that the deceased’s entire estate now belongs to you.
However, most people decide to divide their estates among a few people. They might have multiple children or other family members that they want parts of their estate to go to. This means that the estate must be divided to some degree.
The first way this might happen is that you’ve inherited the house itself. You may not own the entire estate, but the land that the deceased owned is now yours.
However, ownership of the home can also be divided between multiple people. For example, if the deceased had two children and wanted all of their assets distributed evenly between them, he or she might leave the house in the names of both children.
Whichever way this happens, you have agreed to sell the deceased’s house rather than live in it or rent it out. You should be ready to put in some work into selling an inherited house.
Preparing the House for Sale
The good news is that the selling process for an inherited house is very similar to selling any other house. However, there are a few things to be aware of before you put the house on the market.
Remove Personal Belongings
If there’s anything from the deceased’s house that you want to keep, then you should remove it before you put the house up for sale. Once the house is up on the market, it might become more difficult to get these items.
This is because the first thing that’s going to happen is showings. No matter how you choose to sell your house, potential buyers want to see the house before they agree to buy it. This means that you’ll have total strangers walking around the house before it goes to the closing table.
Even if you have to wait a little while to put the house on the market, it’s best to collect those items before you do. Take your time going through any paperwork, trinkets, and clothes left behind. You don’t want to rush this process, or you might forget something important.
A great piece of advice would be to put things into categories as you go through the house. This helps you determine which items you want to keep, which you want to sell, and which items you should throw away. This is the time to arrange the movement of any furniture in the house that you want to keep as well.
Hold an Estate Sale
After you’ve decided what items you want to keep, you might be wondering what to do with the rest of your loved one’s belongings. Most buyers want to bring their furniture and decor into the house when they move in. Therefore, it’s always a good idea to have the house empty by the time you want to start showing it.
At this point, most people will hold what’s known as an Estate Sale.
Similar to a garage or yard sale, an estate sale means that almost everything you see in the house is for sale. This includes furniture, clothes, dinnerware, and even holiday decorations.
This is also something that you can think about while you’re deciding what belongings you want to keep. Bring some sticker labels and a pen with you when you go through the house. When you find items that you want to go in the estate sale, go ahead and put a sticker on it and put a price on the label.
Doing this also helps you ensure that you’ve gone through everything in the house before you put it up for sale. As a bonus, you get a little extra money before the house is even sold.
Taxes on Selling an Inherited House
The only other major difference between selling an inherited house as opposed to any other house is some tax considerations. These and your closing costs are going to come right out of your inheritance. You might want to consult a tax expert before you start making any major decisions about the house since the taxes on selling an inherited house are complex.
Inheritance Tax vs Estate Tax
Unfortunately, even inheritances aren’t immune to taxation. These tax laws are going to vary from state to state, which is one reason why you should consult an expert if you’re unsure about something. However, most states will either have an inheritance tax or an estate tax with a few states having neither or both.
An inheritance tax is paid by the person inheriting. The state determines this after the division of assets. In other words, if there are multiple people inheriting wealth or assets, then they each pay a certain percentage of their inheritance in taxes.
On the other hand, an estate tax comes from the total wealth of the deceased at their time of death. It is a lump-sum tax that happens before the division of assets. Once the estate pays this tax, then the assets are divided up accordingly.
Again, you should be sure to research your state tax laws regarding inheritance before you do anything.
Home Sale Tax Exclusion
In many cases, those selling their homes get to take advantage of a home sale tax exclusion. If you have lived in a home for at least two of the last five years, then a certain amount of your proceeds from a home sale is excluded from taxes. This is up to $250,000 for a single person and $500,000 for married couples.
The issue that comes up a lot with inherited houses is that the inheriter doesn’t usually plan to live in the house for two years. This means that the home sale tax exclusion doesn’t apply to the sale of the inherited house.
You might decide to live in the house for two years to avoid paying that tax. Otherwise, you should expect to lose some of your proceeds to the home sale tax.
Since you’re most likely going to pay the home sale tax exclusion on the proceeds of the sale, it’s important to know how that’s calculated.
In any other home sale, the proceeds are calculated based on how much the house was originally purchased for plus the costs of any renovations made to the home by the seller.
Since an inherited house usually isn’t in the seller’s possession long enough for such improvements, the proceeds are calculated differently. In this case, they’re based on the fair market value of the home at the time of the previous owner’s death. This is to protect the inheritors from owing large amounts of taxes from the sale just because the house has gone up a lot in value.
Keep your eyes on laws surrounding this, however, as the current Biden Administration is attempting to have these tax laws changed or repealed. This is another reason why it’s important to consult an expert early.
Reporting Sale Proceeds
Finally, even if you don’t need to pay taxes on the home sale, you still have to report the proceeds to the IRS. This is just so that the IRS knows exactly what you should be paying and how reasonable it is. Unfortunately, you also have to calculate this number on your own.
Fortunately, it’s not as difficult as it might sound. Some people already hire someone to help them file their taxed anyway, and this can just be added to your file with that professional. Those that don’t hire a tax expert simply need to look at the IRS website to determine how to calculate their proceeds and which forms they’ll need.
If you have questions, there is no shame in asking a professional for help. Understandably, taxes get confusing for a lot of people. the worst thing you can do, however, is nothing at all.
Start Selling an Inherited House Today
Again, the main things that you should be aware of when selling an inherited house are the tax implications and ensuring that belongings are removed from it. Otherwise, the selling process is pretty much the same as any other house sale.
Wondering what your home’s worth in the current market? Get a free online home valuation!
You can even sell your house to us at iBuyer.com and be done with the house sale before you even know it. All you have to do is enter your address and answer a couple of questions. Then you’ll receive a free no-obligation offer on your inherited house.