What to Do When You've Inherited a House and Want to Sell It
What to Do When You’ve Inherited a House and Want to Sell It
Dealing with an inherited house can be both financially and emotionally challenging. In the midst of dealing with the loss of a loved one, you have to figure out the tax obligations associated with inheritance and decide what to do with the property, which may bring to mind fond family memories.
If possible, avoid taking action right away, as it’ll be easier to make the right decision when you’re past the grieving stage. If you’re feeling compelled to keep the property, remember that your loved one wanted you to benefit from their gift. The right decision is the one that helps you the most.
In this post, we’ll help you through the process by answering some common questions about property inheritance and exploring the main options for what to do with your inherited home.
One of the first things you probably want to know is whether you’ll be paying taxes on the inherited property.
The taxes you should know about include:
Federal and state estate tax, which is paid out of the estate, not by the heir(s)
State inheritance taxes paid on the net worth of the inheritance (only imposed by a few states)
Property tax on real estate, whose market value is reassessed when the owner dies
Capital gains taxes, which are owed if you sell the property
Each state has different exemptions and tax reductions, so make sure you understand both state and federal tax laws.
What if There Are Multiple Heirs?
Disputes over inherited property can happen when there are multiple heirs (typically your siblings, but possibly other family members or acquaintances), so communication is key.
Whether your co-heirs are siblings or distant relatives, you’ll need to calmly discuss your options and arrive at a mutual decision. Therefore, make sure everyone is given the chance to have their say and comes to the conversation prepared to compromise. For instance, if you want to keep the house but your family wants to sell, the best solution may be to buy your siblings’ shares.
Keep in mind that your loved one wouldn’t have wanted a bitter fight. Coming to a solution together will not only prevent a lengthy legal battle, but also keep your relationships intact.
What Are My Options?
Your first option is to move into the home. Perhaps you were a renter looking to buy anyway, or maybe you were already in search of a larger house to accommodate your growing family. Regardless, it’s important to consider your budget before making the decision to move in.
First, find out if the home has an outstanding mortgage. A mortgage is usually paid out by the estate, but if isn’t, can you afford the payments? Even if the mortgage is paid off, there are other expenses to consider, including property taxes, homeowner’s insurance, utilities, and general upkeep.
If the property is significantly bigger than your current home, expect to pay more for property taxes, insurance, and utilities. Likewise, an older home may require repairs and extensive renovations that can also cut into your finances.
Once you’ve analyzed the costs associated with moving in, ask yourself these questions:
Is the home in a suitable location?
Do you like the home and can you envision yourself living there?
Does the home fit your family’s needs?
If you’ve answered yes to those questions, then moving in may very well be the right decision for you.
Rent it out
If you’ve inherited property in a desirable location, whether it’s a quiet suburban home or a condo in a trendy neighborhood, your best bet may be to generate some extra income by renting out the property.
If you’re a first-time landlord, here are some of the tasks involved with preparing your property for rental:
Refinance the mortgage (if there is one) in your name in order to rent it out
Have the property inspected and fix any issues
Undertake any upgrades that’ll make your property more appealing to renters
Get a landlord insurance policy
Research comparable rental properties and settle on a rental price
Establish your policies, such as pet and smoking allowances
Prepare a Residential Lease Agreement
Renting out property is a good way to supplement your income and allows you to write off repairs and other expenses. However, if you don’t have the time or the inclination to become a landlord, selling your inherited home may be the better choice.
Selling won’t be easy if the home has personal significance to you, but there are several instances when you should consider putting it up for sale.
Selling your inherited property may be the best option if:
You’re sharing the inheritance with siblings or other family members (you can evenly divide the proceeds of the sale)
It’s in a serious state of disrepair, and you don’t have the time or money to invest in it
The house is in another city or state, and you don’t wish to relocate
You can’t afford the mortgage and upkeep
If you choose to sell, it’s important to know about the obligations that are unique to an inheritance situation (on top of the usual tasks involved with selling property), including:
Waiting for the estate to be settled in probate court
Distributing personal belongings among family and friends, and possibly holding an estate sale
Ensuring that mortgage payments, homeowner’s insurance, property taxes, and utilities are paid out of the estate while the home is still in your name
Knowing how to report the proceeds of the sale when it comes time to file your income taxes
What if I’ve Inherited a Vacation Home?
If you’ve inherited a family vacation home, the same options apply: use it, sell it, or rent it out.
When a home has been in the family for generations, you may want to hold onto tradition and keep the property for summer vacations and weekend getaways. If the home is located in a popular vacation destination, consider renting it out when it’s not in use to generate some extra income.
For example, you can charge a premium rental rate in the summer if the home is in a desirable location by a lake or beach. If the property is going to lay empty aside from your family’s two-week vacation, you may as well earn some money off it, or at least offset expenses such as property taxes and maintenance.
If you don’t plan to use the property yourself and don’t want the trouble of renting it out, your best option is probably to sell. If you have fond memories associated with the home, this can be a difficult decision to make, but selling now is better than allowing it to become a burden to you down the road.
Making the Decision
If you’re unsure of what to do with your inherited property, allow your financial situation to dictate your choice. Remember that the property was left to you as a gift, not a worrisome weight, and that you’ll honor your loved one by making the decision that’s best for you.
Have you inherited property before? What did you do with it?