If you’ve inherited a house, you might want to move in right away or take the opportunity to become a landlord and earn a regular rental income. But what if you don’t actually want the house and would rather get rid of it?
Selling a home is always complicated, but selling an inherited home can make things even more complicated. Everything from the exact wording of the will to the presence of a mortgage can affect how you get rid of an unwanted property. Here’s what to consider and know when selling an inherited home.
Selling an inherited house
How you came into possession of the property and the ownership structure play a big role in selling an inherited home. And don’t forget that as a seller, you’ll have to pay a certain amount in closing costs before you receive your profit.
If you are the sole owner
The selling process is easier if the home was left to you alone, or if you and the deceased (your deceased relative) are both registered as owners of the property. If you were both co-owners or joint tenants with right of survivorship, you don’t have to worry about probate or other legal procedures – you simply become the sole owner of the home and can sell it as you wish.
If you own it together with others
In some cases, you inherit the house together with other family members, such as siblings or cousins. In this case, all co-owners of the property are jointly responsible for making decisions about it.
The combination of family and money can be stressful, especially during an emotional time when you’ve all lost a loved one. If it was your childhood home, the emotional attachment can make things even more difficult. It’s important to work with your family to make sure everyone is on the same page and to avoid hurt feelings.
“If additional heirs are involved in the sale of your inherited home, you should consult an attorney about how best to manage those relationships and responsibilities during this process,” says real estate investor Shaun Martin of Denver-based home-buying firm Watson Buys. “You should also discuss whether they will contribute financially to any repairs or renovations needed before the property is sold.”
Another option, especially if neither of you is interested in living in the property, is to buy out the other heirs. You can offer to pay them their share so that you become the sole owner of the property, making it easier to sell it later.
The inheritance procedure
Probate is a legal process in which the assets of an estate are used to pay off creditors’ debts. The remainder is then passed on to heirs according to the deceased’s will or, if there is no will, according to the state’s laws. It can be a long and complicated process.
Each state has different probate procedures, but typically an executor is appointed for the deceased’s estate. This person is responsible for carrying out the terms of the will, managing the estate’s assets, and ensuring that they are properly distributed to the beneficiaries.
It is important that you follow the entire probate process closely and do not take possession of the house or try to sell it before you are legally allowed to do so. Of course, if you are also the executor, this will simplify matters.
Once ownership of the property has been legally transferred to you, you can begin the selling process, but you shouldn’t expect this to happen immediately.
“Probate can be a lengthy and complex process, often taking several months to years, depending on the size and complexity of the estate,” says Steven Parangi, an attorney and lender with Alpine Mortgage Services in Rochelle Park, NJ. “It can also be costly, with court, attorney and appraiser fees involved. However, probate ensures that the wishes of the deceased are respected and the estate is properly settled.”
Is there still a mortgage on the house?
Whether the inherited home is subject to a mortgage or has already been fully paid off also influences how the sale proceeds.
If there is a mortgage
If the house is mortgaged and the deceased was the sole tenant, it is the estate’s responsibility to continue paying the loan payments. This means that the executor must determine how the mortgage payments will continue to be made from the estate’s assets.
If you inherit a home with a mortgage, whether through probate or otherwise, you will also have to assume the mortgage. This means you will have to make the monthly payments yourself, no matter how much they are. Contact the lender to work out the logistics of transferring the property and loan into your own name – an important part of being able to sell the home. Once you’ve done that, you can sell the home.
If there is no mortgage
If the home doesn’t have a mortgage on it, the process is simpler: you don’t have to worry about paying off the loan. However, as the new owner of the home, you will still have to pay property taxes and utilities. (The deceased’s estate may provide funds to cover these costs, so be sure to check.)
If you inherit the home, you will need to work with the local land registry offices to get the title deed to the home in your name and to have utility accounts set up in your name. Once this is done, you can sell the home.
What condition is the house in?
If the home is in good condition or in an attractive location, you’ll likely get the best price by selling traditionally using a local real estate agent. If you can find an agent with experience selling inherited homes, all the better – they can help you develop the best selling strategy and guide you through all your options.
For inherited properties, it may make sense to spend a few hundred dollars on a home inspection before listing. This will alert you to any problems or necessary repairs that you may not have known about since it wasn’t your home.
However, if it is in poor condition or extremely outdated, the circumstances are different. In this case, you must either:
- Invest in repairs and upgrades before listing
- Sell the product as is, informing buyers that any work required is their responsibility.
- Sell to a company that buys homes in any condition for cash
Selling as-is or to a company that buys houses for cash doesn’t require as much effort, time and money as renovating. But it has one major drawback: you won’t get as much as you probably would if you sold the traditional way.
Tax implications of selling an inherited house
Selling a property for a large profit can potentially trigger property taxes on the property proceeds. However, inheritance properties are unique in that while you own the home now, you did not purchase it. Much depends on how much the deceased originally paid for the home and how much the home’s value has increased since then.
To find out whether you have to pay capital gains tax on your profit from the sale of an inherited home, you need to calculate the gain: This is done by deducting the purchase price (or original cost) of the home from the selling price.
Typically, the cost basis for a property is the purchase price plus any significant expenses for improvements. However, when you inherit a property, the cost basis is usually “stepped up” or adjusted to equal the fair market value of the property on the date of the decedent’s death. (In some cases, it may also be the fair market value on a different valuation date, such as the date the executor filed an estate tax return.)
“When someone inherits property, they receive a ‘stepped-up’ basis, meaning the property’s tax basis is adjusted to its fair market value at the time of the previous owner’s death,” says Parangi. “This is very beneficial to the heir, as it can significantly reduce or eliminate capital gains tax when the property is sold.” (There are some exceptions to the stepped-up basis, so it’s wise to consult a tax professional.)
Parangi gives the following example: “If a parent buys a home for $100,000 and it is worth $500,000 at the time of death, the heir’s basis is $500,000, not the original $100,000.” So if you, as your parent’s heir, sell the home for $550,000, your taxable gain is $50,000, not $450,000.
To determine the value of a property at the time of the deceased’s death, you need what’s called a point-of-death appraisal. This “provides a clear and defensible valuation of the property that can be beneficial in a variety of scenarios, such as resolving disputes among heirs or dealing with the IRS,” Parangi says.
FAQ
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It depends on your personal circumstances. Of course, if you plan to live in the house or rent it out, it makes sense to keep it. If you don’t want to do either – or if it requires extensive work that you don’t want to do – then selling makes more sense. Consider how attached you are to the property (if you have any) and how you would feel if it was no longer in the family. If you’re thinking about selling, talk to a local estate agent about how much the house is worth in today’s market.
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You may have to pay capital gains tax on inherited property – but only after you sell it. The gain is based on the difference between the final sale price and the property’s acquisition cost, usually the fair market value of the home on the date of the decedent’s death. But even if you sell at a profit, you may not have to pay capital gains tax. That depends on many factors, including exactly how much money you make on the sale and whether you file your taxes individually or jointly with a spouse.
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Before you can sell, you must have title to the property. This can take quite a while if the inheritance has to go through the probate process. Once you can legally sell the property, how long it takes will vary depending on local market conditions and the type of sale. Selling to a local company that buys houses for cash can take as little as a couple of weeks, sometimes even less. Using an agent will certainly take longer, but will likely get you a higher price for the home.
