It’s a must that you understand what happens when you inherit a house. You’ll need to address the tough issues of money and emotions, as well as what to do with the home. Tackling these issues can prove challenging.
Read on to find out what happens when you inherit a home and how to work through taxes as well as legal and money issues. You can avoid costly mistakes when you come into real estate by understanding the basics of selling an inherited house.
When you inherit a home, you may also inherit debt, such as local and federal tax liabilities. Don’t just let it sit. You need to figure out what you’re going to do immediately.
Inheriting a House
Begin by finding out the value of the home. Online value estimators are a great starting point that can help you figure out the worth of the property. Be warned, however, that this initial estimate doesn’t mean that’s what you’ll get for the property.
What you net will depend on many variables. For instance, you need to consider the condition of the home as well as the market conditions in the area. You’ll also need to consider whether the home has an outstanding mortgage and what you must pay to own the house entirely.
An online home sales proceeds calculator can help you guesstimate what the house will net for your family. Hopefully, the taxes are paid to date. If not, it’s possible that those moderate tax bills became a big bill. In that case, you may have to pay off the tax bill using the proceeds from the sale of the home.
Clarify how many people are inheriting the property. What each family member nets will vary greatly depending on how many people have a valid claim to the home. You also need to choose a point person who’s going to manage the selling process.
First Things First: Dealing With Uncle Sam
After inheriting property, capital gains and other taxes are a primary concern. A tax balance can impact the proceeds of the sale substantially. If the house is carrying back taxes, the government may claim that money directly from the sale proceeds.
Tax laws vary by state. You can get a general idea of the laws in your area by doing a simple online search.
It’s important to note that inherited homes do not qualify for the home sale tax exclusion. Also, if you plan to live in the home, you won’t qualify for this tax benefit. When you’re selling inherited property that you lived in, you can usually take advantage of this benefit.
Typically, the first $250,000 of the sale is tax-free for single homeowners. Married couples can enjoy a $500,000 benefit.
I Inherited a House and Want to Sell It
Once you’ve figured out your tax situation, you should start thinking about selling the house – if that’s what you desire. You need to clear out any belongings, decluttering the household as you go along. It helps to come up with some kind of system to make this process go smoother.
You may want to start out with highly personal belongings. This task is one of the most challenging aspects of clearing out your parents’ home. These items often bring back deep-rooted memories.
It’s nearly impossible to collect a lifetime’s worth of belongings and merge them with your own. Limit the things that you keep to the most cherished items. You need to figure out what to keep, what to get rid of and what to sell.
If you have a lot of items to sell, a yard sale or even an estate sale is a good idea. Once you’ve divided personal possessions with family members, you can figure out what route you’re going to take.
Pricing the House for a Quick Sale
Now, it’s time to make even more significant decisions. You need to decide how much you want for the house – and how fast you want to get paid.
You have to make this decision based on several factors, such as if there’s an outstanding mortgage or other debts. You’ll also need to consider the condition of the house and the current real estate market.
Don’t set yourself up for disappointment. More than likely, you’re not going to get what you think you deserve for the property.
Many people decide on a price based on the sales of comparable homes. What you end up with will depend, in large part, whether it’s currently a buyer or seller’s market – especially if you’re looking to sell fast.
Typically, it can take weeks or months to sell a home on the consumer real estate market. Again, the home’s condition, the state of the market and even the skill of your chosen real estate agent will make a big difference.
Selling inheritance property is a multistep undertaking. It starts with you doing your homework and ends with closing the sale.
An excellent place to learn about selling your home is NOLO. There, you can learn detailed information about selling your inherited home. The site also offers many resources that can help you to perform the beginning steps of due diligence.
Going Through the Motions of Selling an Inherited House
Nearly all real estate transactions have their ups and downs. Learning about real estate sales and the selling process is a virtual minefield. Unless you’re a real estate professional, you’ll most likely encounter unfamiliar obstacles.
As an example, an executor can hold your inherited home in probate for years. By doing so, they can use the home without actually taking possession of the property.
Fortunately, this kind of situation isn’t permanent. Eventually, the property must change hands.
When it does, handle the process with care. Typically, a benefactor will designate that their home is divided equally among family members.
In other words, they want the value of the home to get distributed evenly among siblings and other relatives. Often, however, this process leads to infighting and high-strung emotions. If you don’t handle this phase of the process carefully, the fallout could last for years, so take your time and make sure you do it right.
Overcoming Obstacles During the Sale of Your Inherited House
When it comes to clearing out personal items, do your best not to feel guilty. This process is already emotionally draining. You have to sort through years of intimate possessions that are tied to precious memories.
Many people faced with this responsibility are prone to feeling guilty. They feel like they’re giving up memories that they should hold close to their heart. In truth, this isn’t the case at all.
Also, you need to consider options if the inherited property is underwater. Sometimes, benefactors choose not to accept an inherited home if more money is owed on the mortgage than what the home is worth.
It’s also important to remember to check that there are no liens against the home before you place it on the market. Besides, the home may need repairs.
For instance, if an elderly family member lived in the home, they may not have kept up with the maintenance. There may be problems that are hidden.
However, any problems will definitely show up during home inspection. These issues can cost you thousands of dollars or stop the sale of the home altogether.
Managing Property Rights
It’s common for people to leave their homes to multiple family members. This makes the selling process more complicated. However, you do have options.
As an example, you can offer to buy out your relatives. Also, some family members may want a stake in the property while others just want to cash out.
You can buy out the other heirs in cash or by financing the value of the home. Keep in mind that you need to consider out-of-pocket expenses such as the appraisal and closing costs.
You may want to keep the property. In this case, another family member may want to sell, while at the same time, you don’t have access to mortgage funding.
If this happens, you can record a promissory note detailing how you’ll pay back the value of the home. You’ll need to include information such as the monthly installments and interest payments. By doing this, you can buy out other heirs over time.
Also, your heirs will receive interest income as you make payments. Alternatively, you may decide to sell the house and split the profits to simplify the process.
In the Meantime
It bears repeating again that cleaning out the house is going to be the most challenging part of selling your inherited home. You may want to delegate decision-making during this stage.
For instance, you can allow each family member to take turns choosing items that they want. It makes sense to exclude in-laws from this process. However, make sure the grandchildren get a chance to choose mementos and then decide which other relatives you want to include in the process.
It’s also important to know that you won’t need to pay capital gains tax if the home increased in value during the previous owner’s lifetime. However, you may have to pay it if the home increases in value between the time you inherited the residence and the time you sell it.
If you’re not local to the area, you may have to work with multiple real estate agents. They will help you choose the selling price and develop a marketing plan. A real estate agent can also help you to figure out whether you should invest in restoring the house or sell it as is.
If you’re going to sell the home on the consumer market, it’s almost always beneficial to invest in upgrades. However, be warned – it can cost a lot of money to do everything the right way.
Closing the Deal
If something is holding up the sale of your inherited home, you may want to consider renting it out. Many heirs choose to do this. However, they lack experience as a landlord.
If you rent to a bad tenant, it can turn out to be a nightmare. They could damage your home and you may have to deal with eviction.
Whether you choose to sell or rent your inherited home, you’ll need to make it look attractive, but take baby steps. As an example, you can have a contractor paint the house.
Also, always remember to straighten up the yard. A cleanup performed by a professional landscaper will give your home curb appeal.
Most of all, don’t skip over clearing out the house thoroughly. Potential renters or buyers will not see the same cherished memories in the items that you’ve left behind.
If you don’t have any kind of landlord experience, it may prove a bad idea to get into renting to tenants on your own. You can, however, hire a property manager to market, lease and oversee your inherited home. Before you rent to anyone, however, make sure you have the home inspected, get any licenses and get insurance for the property.
When You Need Cash Fast
If you inherit a home in Montgomery County, Frederick County or Maryland, connect with House Buyers Cash to sell your home fast. Contact us today for a fair offer and cash in your hand.
Don’t ignore your instincts when selling an inherited house. If your gut is telling you to sell it – do it.