Losing a loved one is difficult and often complicated by legal and financial matters. Please know our thoughts are with you and your family during your loss. We hope this article will help you navigate the murky waters of how to handle an inherited home.
First, the property will have to pass through probate. Probate is essentially the legal procedure for verifying and assuring the authenticity of a will. After a judge signs off on the documents, the executor is responsible for settling the estate and distributing the property among the heirs per the Last Will and Testament.
If there isn’t a will, known as an intestate estate, the property is distributed according to state law.
In complex transactions like these, it’s always a good idea to consult a probate attorney or estate-planning attorney. Typically, the will contains instructions for settling an existing mortgage. Heirs should be prepared to examine the financial implications of property in question.
In most inheritance cases, you’ll find yourself with a home that still has bills to pay. Carefully evaluate your budget to be sure you can cover these additional costs. Sometimes the previous owners took out a reverse mortgage, and those funds must be repaid. Other times, the mortgage term merely hasn’t been finished. You’ll either need to assume the mortgage, refinance, or pay off the loan in a lump sum.
Inheriting a house with other family members can be a difficult situation, particularly if each person has different goals for the property. Many times, siblings choose to rent out the home, splitting the income, or sell the home, sharing the profits. The best way to diffuse potential conflict is to open the dialogue early and work hard to find a creative solution or acceptable compromise.
What are your options?
Get the property appraised, so you have an accurate home valuation. Inherited properties are valued on a stepped-up basis that usually translates favorably for the new owner. No matter what you plan to do with the property, you need to know exactly what it’s worth.
Many times, properties owned by the elderly, or those rented by tenants don’t get the regular TLC they need. Before a home can be re-leased or sold for a profit, you’ll need to make repairs or updates to improve the livability or saleability. There might be some extensive or pricey work ahead. Some of the most expensive repairs are things that have been put off for years, like plumbing or electrical issues and foundation adjustments.
Be sure to get any necessary inspections and hire a reputable contractor to handle the repairs.
Many folks don’t realize that you can refuse the inheritance, though the idea might seem foreign to most. If a home is upside down and the estate can’t cover the mortgage or other costs, that debt will pass to whoever inherits the property. You can avoid this financial responsibility by declining the inheritance and leaving the property to the executor and creditors to settle.
Living In an Inherited Home
Your first option is to take up residence in the inherited home! Inheritance can be a convenient way for heirs to achieve homeownership, even better if the property in question is paid off. Be prepared to discuss this matter with your family, especially if the home is now jointly owned amongst your siblings.
As an added benefit, if you use the inherited property as your primary residence for at least two years, you’ll be eligible for the Home Sale Tax Exclusion! If you choose to live in the home at least two of the five years before the sale, up to $250,000 will be tax-free for individual sellers, or $500,000 for married couples. This means more money in your pocket down the road!
If you’re considering a move to an inherited property, be sure to check your budget carefully. You might be taking on a mortgage payment, and you’ll definitely be responsible for insurance, utility bills, maintenance and property taxes.
Renting an Inherited Home
If you jointly own the home and nobody wants or needs to take up residence in the property, there’s always the option to rent it out. Whether you decide to use it as a vacation rental or offer it as full-time accommodations is up to you and your family. Either way, rental properties create a passive income stream to split between the owners.
Becoming a landlord is a pretty major responsibility. You’re on the hook for all the bills, such as mortgage payments, taxes, insurance. On the plus side, repairs and renovations are deductible as a business expense. On the downside, you’ll be in charge of repairs and regular maintenance, as well as dealing with any damage from the tenants.
Renting out an inherited property allows the home to pay for itself until market conditions improve and it can be sold for a profit. Consult an attorney regarding your legal responsibilities and be prepared for some financial obstacles. You might have to refinance the home in your name, and need to understand how to claim it and what your tax obligations are.
Selling an Inherited Home
In many cases, the beneficiaries choose to sell their inherited property. Many people already have a home and can’t afford to juggle both sets of bills. In other cases, the property must be sold to pay off the remaining mortgage and taxes. When there are multiple owners involved, inherited homes are often sold to provide an equitable solution for all parties.
When you inherit a home, the property value is established using the Stepped Up Basis Rules. The basis of a property is the value calculated for tax purposes. For inherited homes, the home’s tax value is established from the time of the previous owner’s death.
The home’s sale value is more than what the original owner paid for it, but will not exceed the value established at the time of their death. Sellers benefit because they’re only responsible for paying taxes on the profits past the stepped-up value amount.
Know what the IRS expects, including where to report the sale and what information is required. Tax law is complicated and varies from state to state. Consult a licensed attorney to understand the differences in various requirements, such as estate tax versus inheritance tax. Be prepared to hire a real estate agent to handle the sale and make any necessary repairs or updates.
Whitestone Acquisitions Buys Inherited Properties
If you’re looking for a thoughtful, expedient solution during a difficult time, you should know that Whitestone Acquisitions buys inherited houses in Dallas, Houston, and Cleveland! We specialize in buying inherited properties As-Is and can help your family donate leftover items to charity.
We help families sell their inherited homes quickly! In most cases we can close in as little as ten days, depending on the title search. Our efficiency allows you to focus on more important things, and you can be confident you’re in the hands of experienced professionals.
We would love to make you an offer! Please fill out our short questionnaire, shoot an email to firstname.lastname@example.org or give us a call at 844-207-8857 so we can talk about your situation.
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