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After the loss of a loved one, you may find you will be inheriting a house. There are many questions you must answer, such as, what do you do with it? Are there implications that could impact other family members and give them an interest in the property?
Furthermore, if there is a mortgage on the home, you will need to ensure payments are still made on time. As you can imagine, these are just some of the hurdles you can face when you inherit a house.
You have three options when your loved one leaves behind a house, including:
No matter which option you choose, there are legal and financial obligations you need to be aware of and understand about how they could impact your decision.
If you decide to move into the family home you inherited, you must first verify that you are the sole heir entitled to the property. If the home was left to you and other family members, you would need to purchase the others’ interest in the house.
In addition, if there is a mortgage on the home, you will need to assume responsibility for the payments. In some cases, you may need to refinance the house and pay off the existing mortgage. You will also need to ensure property taxes and homeowner’s insurance are current.
If you decide to rent the inherited house, and the house was co-inherited, then any proceeds from the rent must be split between all interested parties. In addition, you must ensure all maintenance and repairs are current and the home is in rentable condition.
Additionally, you will be responsible for all property taxes, mortgage payments, maintenance, repairs, and upkeep on the property. Being a landlord also requires you to have landlord insurance.
If you decide to sell the property, you have a few different options as follows:
If you choose to use a real estate agent, you will need to bring all repairs and maintenance current, including plumbing, electrical, and painting. Next, you will need to declutter the home and clear out any personal belongings.
You may also need to arrange an estate sale to make it easier to clean out the home. After the estate sale, you will need to stage the home for open houses and viewings to attract potential buyers. Your real estate agent may request that you complete a home inspection before putting the house on the market and make all necessary repairs.
Any costs associated with preparing the house for sale through a real estate agent will need to be paid out of pocket. However, if you have an estate sale, you can recover some of those costs and the rest from the proceeds of the sale.
When you decide to sell the inherited property as a For Sale By Owner listing, you are responsible for all aspects of the sale, such as preparing the home, staging, advertising, home inspection, marketing, contracts, negotiations, and listing it. However, you do not have the added costs of paying sales commissions to realtors when the house sells. Generally, For Sale By Owner sale prices are less than if you sold it with an agent.
In addition, you have a bit more flexibility in what you want to do to prepare the house for sale. For example, you may decide to take care of some of the essential repairs like ensuring the plumbing and electrical are up to code. However, any other maintenance or repairs will be the buyer's responsibility.
The easiest way to sell an inherited property is to sell it in “as-is” condition. This means you do not have to invest any money into the property or worry about home inspections, staging the house, repairing, showing, etc. Furthermore, the closing costs can be thousands of dollars less.
In situations where there are multiple heirs, each with an interest in the property, things can be somewhat more complicated. For example, say you and your sister inherit the family home.
You decide to sell the house, but your sister wants to keep the property. If your sister wants to keep the house, she will need to buy out your interest by paying you half the fair market value sales price.
On the other hand, suppose you and your sister both agree you should keep the house. Then you would need to determine who would live in the house, whether that person would pay the rent or if you both want to rent it out instead.
When more than two people are listed as heirs, it can become even more challenging when everyone cannot agree on what to do with the inherited property. However, when the majority agree, they can request a ruling from a court-appointed mediator or judge.
Different taxes will need to be paid whether you decide to keep, rent, or sell the house.
Some states have inheritance taxes that the beneficiaries must pay based on the value of the inheritance they receive. The amount of the tax can vary depending on the relationship of the heirs to the deceased.
Estate taxes are taxes paid by the deceased on the fair market value of their estate and assets - including their house - when they are inherited. The beneficiaries can pay estate taxes out of their pocket or out of the cash assets of the estate.
When you sell inherited property, you and any other beneficiaries must pay capital gains taxes. These taxes are based on the difference between the fair market value and the actual sales price of the house. For instance, suppose the home’s fair market value is $350,000 and you can sell it for $400,000. Then you would pay capital gains taxes on $50,000.
Property taxes must be paid current as part of the closing costs when selling the house. The property taxes can be deducted from the proceeds of the sale price.
Step-up basis taxes are a type of tool that is used when paying capital gains taxes. It allows beneficiaries only to pay taxes on the difference between the home’s value on the date of the deceased’s death and the value on the day the house is sold.
When you decide the best option for you and your family is to sell an inherited home, 800CashToday can help you sell it easily and quickly in “as-is” condition to an interested cash investor. We offer fast 7-day escrows, easy closings, and other benefits, including:
We can also assist you with dividing the proceeds from the sale between multiple heirs. To get started, list the inherited home through our online service for free to be connected with local cash buyers and get your cash offers today!
If you have further questions or require additional information, please feel free to contact us at 1-800-Cash-Today.