The idea of someone giving you a house sounds nice in theory. Imagine the money you won’t spend. Yet, often when you’re given a house, it’s an inheritance and it comes with some complications attached.
Often the inheritance is a result of a loved one’s death and the home may have some emotional stings to your heart too.
Nevertheless, you still find yourself with a house and the need to know how the sudden gift will impact you and what you should do with the house. Selling inherited property is often the route taken by those who find themselves with a property they didn’t choose to buy. Yet, it’s not the only option.
Whether you keep the property or sell the inherited home, are some things you should know about this newfound wealth. Read on to learn more about the inherited property and your options once it belongs to you.
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What is inherited property?
Inherited property is a piece of property like a home, cottage or condominium or a piece of land that’s given to you by another person. Often the gift comes to you as a result of another person’s death. The property gets gifted to you as part of the estate of the deceased.
So, while this can appear on the surface to be a generous gift, it isn’t without a bundle of complications. The property may have been gifted to more than one person. The property might not be owned outright and still have a mortgage. It might be a piece of property in need of some repairs and attention.
Further complicating the picture, you might already own a home. Or the home by is far away from where you live and work now. There are a variety of considerations to be aware of as you navigate the plethora of decisions you need to make about your inheritance.
Obligations related to the property
As you consider what to do with the property you know you will have some financial and legal obligations related to the property. You will need to consider things like a mortgage, taxes, insurance, and other co-owners. More on this later.
You might have some emotional attachments to the property. This makes decision making a little murkier as you navigate what to do. You want to be sure to investigate all your options and obligations as it relates to the property before making a definitive decision either way.
For most people one of their first concerns related to an inheritance like a house is what the tax implications will be. Will you suddenly owe a whole bunch of taxes now that you have inherited.
Just because you have inherited doesn’t automatically mean you owe taxes necessarily. Really the tax implications come as you make decisions whether to sell, keep or rent the property.
Let’s take a closer look at the issue of taxes.
Most often when you sell a property and make a profit, you worry about capital gains taxes. A capital gains tax is the tax on the amount of profit you make on a property from you bought it to when you sold it again.
There are short term capital gains taxes and long term capital gains taxes. The rate you pay depends on how long you have the property from when you bought to sold again.
In most cases, you won’t pay capital gains on an inherited house, as you never actually purchased it. You will more likely need to consider something called step up taxes.
Step up taxes
Step up taxes apply for homes and property that get inherited. The fair market value of the home will be considered from the day you officially inherit the home.
Then when and if you sell the home, you pay taxes on the difference between the home’s value from when you inherited it to when it sells.
This can be big tax savings over actually paying capital gains taxes.
It’s yours, now what?
So, now you have inherited the home and it’s decision making time. Before you can make a sound decision, there are several things to consider related to the home. Each might impact your decision in some way.
One of the first things to know about the property is if it’s owned outright before it’s gifted to you or if there is still a mortgage on the property.
If there is a mortgage, you need to figure out what type of mortgage and the terms of the mortgage. Sometimes a home will be inherited and have a mortgage, but the estate of the deceased pays off the mortgage as part of the estate.
You want to know if there is a traditional mortgage that may have a due-on-sale clause. This means the entire amount of the mortgage is due as you become the owner. It could also have a reverse mortgage that often has terms requiring an immediate sale to pay it off.
You want to know what the house is worth compared to what is owed and hope it isn’t an upside-down property, meaning you owe more than it’s worth.
You will want to know the property taxes on the property. You want to be sure they’re paid on time while you decide what to do with the property. As the new owner, you don’t want to lose the property because you fell behind on taxes while trying to figure out what to do with it.
Whether you opt to live in the home or rent it, you will need to maintain insurance on the home. You want to factor in the cost of insuring it as you make decisions going forward.
Repairs and maintenance
When you inherit a home you get it as is. If the person who gifted it to you was elderly, there may be a change it needs some work done on it.
As you decide what to do with the house, factor in the expense of repairs as needed. If you opt to keep the home, remember, there will still be expenses related to maintenance whether you opt to live there or rent it to someone else.
Are there other stakeholders to consider?
In addition to those considerations related to the inherited property, you also need to consider if there are other stakeholders involved. If the property was gifted solely to you, then you can make whatever decisions are your prerogative.
It gets more complicated when the inherited property was given to a number of people. Say a parent passes away and leaves their home to their three adult children. There can be complications if one person wants to keep the property and others don’t.
It then also becomes necessary to decide how the house will be divided. That might mean one person buys out the interest of the others. It might mean you all agree to sell the home and divide up the revenue.
What are your options for the property?
One of the first things is to figure out the value of a property. It might help you to make decisions about the best route to take with the property. It can also be one more hassle in the process of taking care of the property if you need to meet with realtors and appraisers.
Now that you have considered all the factors, you need to make decisions about what to do with the property.
Live in it
One option is that you will opt to live in the property. In this scenario you will need to consider possible capital gains taxes and whether there are other stakeholders who may have rights to the property.
Often, this option is not often followed. Many people already have their own homes when they inherit. Maybe they don’t even live in the same town.
If you have some of the above issues, you could opt to rent the property. In this scenario, you would again need to consider capital gains. You’ll also need to evaluate if the property needs repairs before renters move in. You also need to have some available to handle maintenance issues.
After considering all those factors, many people decide the right choice is to sell the inherited property. In many cases, you already have a home, or you don’t live near where the inherited home exists.
Selling a home is not without its hassles either. Between getting the property ready, appraisals and realtors, it can be a laborious process.
For many when they get to the decision to be done with it, they want it sold and quickly. One option is to use a service like iBuyer that matches buyers to your home. You can skip the hassles of listing with a realtor and get fair market value quickly.
Selling inherited property
While gifting someone a piece of property is generous, it can offer challenges too. Often inherited homes come with some sentimental value making it hard to make a decision.
If you decide selling inherited property is the way to go, we can help. You can skip the showings and the realtor. We can arrange a flexible closing that works for you and the house gets sold quickly and for a fair price. If you want more information on our services, start by submitting your address.