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You’ve inherited a house. Congratulations. But you don’t want to live in it, nor do you want to keep it as an investment property. So, instead, you’ve decided to sell it.
Selling a home is always complicated, but adding in the fact that it’s inherited adds even more complexity to the equation. Everything from it being bequeathed in a will to the presence of a mortgage can impact how you unload it.
Circumstances of inheritance
How you came to own the home, and the nature of your ownership, plays a big role in how selling it works.
Dealing with probate
Probate is a legal process through which an estate’s assets are used to pay its creditors and the remainder is handed down to heirs according to the decedent’s will or, in the event there is no will, state law.
Each state has a different process for probate, but it typically involves appointing an executor or personal representative for the decedent’s estate. That person is responsible for following the terms of the will, managing the estate’s assets, and seeing that they’re distributed properly to the beneficiaries.
It’s important that you follow the full probate process closely and don’t take possession of the home or sell it before you’re legally permitted to do so. Of course, if you’re also the executor of the estate, that simplifies matters.
The probate process can take months to complete. Once you’ve taken possession of the home, or the executor of the estate has legally transferred the home to you, you can begin to sell it.
I inherited the home with others
In some cases, you may inherit the home along with other family members, such as siblings. If this happens, you become joint owners of the property and jointly responsible for making decisions about it.
Mixing family and money, especially when it comes to something as emotional as a childhood home, during an emotional time such as losing a loved one, can be rife with stress. It’s essential that you work together with your family to make sure everyone is on the same page and to prevent hurt feelings.
“If there are other heirs involved in selling your inherited home — such as siblings or cousins — you may want to consult an attorney about the best way to handle these relationships and responsibilities during this process,” recommends real estate investor Shaun Martin, of Denver’s Watson Buys, a house-buying firm. “You may also want to discuss whether or not they will be contributing financially toward any repairs or renovations required before selling the property.”
Another option, especially if no one is interested in living in the property, is to buy out the other heirs. You can offer to pay them for their equity interest so that you become the sole owner of the property, which can make the future sale simpler.
I’m a joint owner of the home
If you and the decedent were both listed as owners on the property (as tenants in common or joint tenants with right of survivorship), the process becomes much easier. You do not have to worry about probate or other legal processes. Instead, you’ll simply become the full owner of the home and can proceed to sell it.
The financials of selling an inherited property
Whether the inherited home has a mortgage or is owned free and clear also impacts how selling it works.
Inherited homes with a mortgage
If the decedent was the sole person on the mortgage, it is the responsibility of the estate to continue making loan payments. That means the executor of the estate has to determine how to continue making mortgage payments from the estate’s assets.
When you inherit the home through the probate process or otherwise, you will have to assume the mortgage — and start making the monthly payments, as well. Reach out to the lender to determine the logistics of assuming the mortgage and getting the property and loan under your name — an important part of being able to dispose of it.
Once you’ve done that, you can sell the home.
Inherited homes without a mortgage
If there’s no mortgage on the home, the process is simpler: No need to worry about loan repayments. However, as the home’s new owner, you will need to pay property taxes and utilities. Hopefully, the decedent’s estate will have provided funds to cover these expenses, but if not, you’re responsible.
As part of inheriting the home you’ll need to work with the local property records offices to get the deed to the home put in your name and to set up utility accounts in your name. Once that’s done, you can sell the home as normal.
Taxes and capital gains
Selling any property for a profit can trigger capital gains taxes. However, inherited properties have some unique rules.
When you sell the home, you need to pay capital gains taxes on any profit. You calculate the profit by subtracting the cost basis for the home from the price you sold it at.
Typically, the cost basis for a property is the price paid to purchase it, plus any substantial sums spent to improve it. However, when you inherit property, the cost basis is adjusted to be either the fair market value (FMV) of the property on the date of the decedent’s death or the FMV of the home on an alternate valuation date. The alternate works only if the executor filed an estate tax return and elected to use that valuation.
The sooner you can sell the home, the less time there will be for the home to gain (or lose) value. That means quicker sales can mean paying less tax.
Finding a real estate agent to sell your inherited property
One of the best things you can do when dealing with an inherited property is to find a real estate agent who can guide you through the process. Agents are experienced real estate professionals who know how to deal with unique situations and help you get the best possible price.
Your agent can help you strategize the best selling approach, walking you through options such as selling your home as-is to minimize the need to invest funds in sprucing up the place.
Ask friends for referrals and talk to a few agents to make sure you find one that will work well with you.
Yes, you may owe capital gains on inherited property — but only after you sell it. The gain is based on the difference between the final purchase price and the cost basis of the property, which is the fair market value of the home on the day the decedent died. So if the home gains value between that date and when you sell, you may pay taxes.
Whether you should sell or keep an inherited property is a difficult decision. If you want to live in the home or use it as a real estate investment property, keeping it makes sense. If you live far away, don’t want to move into the home, or don’t like the idea of being a landlord, selling it might make sense. Of course, you’ll want a sense of the local real estate market, but if you have to assume substantial expenses with the house (mortgage payments, utility bills), you might want to sell sooner rather than later.