Inheriting a house can be equal parts exciting and challenging. You may have inherited a family home you don’t view with fondness and want to get rid of it.
Maybe you inherited the vacation home of your dreams, but the mortgage payments and the upkeep are the stuff of nightmares. You can’t keep it; refinance is not an option because you can’t find a lender.
Or perhaps you and your siblings or other relatives inherited the home together from a loved one and want to sell the house and split the proceeds.
Selling an inherited home can be daunting, and you’ll have to juggle the sales process, financial ramifications, and legal proceedings that come with the house. You’ll also have to determine the home’s value to ensure you don’t leave money on the table.
That doesn’t mean it’s impossible.
This blog will review the fundamentals for selling your inherited house. With that knowledge, you should be in a better position to deal with the challenges you may face.
Selling an Inherited House
When you inherit the property, it can be a significant financial windfall. After all, a house is often the most valuable asset for most people. You might be in a situation where you want to convert the home into cash.
That conversion may be a time-consuming process complicated by local laws, property tax burden, probate, and the wants of other people who may have inherited the house with you.
Can You Sell an Inherited House?
Yes, you can sell an inherited house. You are the homeowner, or if there are multiple heirs, ypou are the homeowners. Usually, selling an inherited house is similar to selling a place you own. You can sell the home on the open market, or you may decide to sell to an investor or cash buyer.
One thing that you should be aware of is your potential tax liability on selling an inherited home. Generally, you don’t pay taxes on inherited property, but some exceptions apply. In subsequent sections, we will discuss the taxes you may be responsible for paying.
Info on Selling an Inherited House
Inheriting a house with other people is an issue that arises from time to time and complicates the sales process. Tax considerations are also involved when you decide to sell an inherited home.
Selling an inherited house with multiple people
While multiple heirs own a portion of the property, the easiest solution is to build consensus on the next step. With split ownership between family members or other heirs, the best and the most straightforward course is to appoint a person who handles the process. That person, a point person, will coordinate the following:
- When the home needs to be cleaned
- What to do with the possessions in the house
- Choosing how to sell the home
- Scheduling inspections
All the machinations of selling a house can be time-consuming, and having multiple voices in the mix will make the transaction more difficult and confusing for everyone involved.
What if we can’t agree to sell?
If you inherit a home with multiple heirs, and most heirs want to sell, it may be possible to force the house’s sale. The new owners who want to sell must file a lawsuit, typically in a probate court. The court may decide to allow the deal if the majority of the owners are in agreement. If the sale goes through, the money from the sale will be divided up between the heirs.
The heirs who want to sell the house may also let the heirs who don’t want to sell buyout their share.
Taxes associated with an inherited property
Usually, you won’t have to pay taxes on an inherited property. But in some cases, you may have to pay an inheritance, estate, gift, or capital gains tax.
Inheritance tax: There is no federal inheritance tax, but six states apply an inheritance tax. Those six states are:
- New Jersey
The inheritance tax amount depends on the value of the property and the tax rate. Each state’s tax rate varies. If you inherited the house from your deceased spouse, you are exempt from the tax.
Additional exemptions may apply, so if you live in one of those six states, reach out to your state’s tax department to see which exemptions may apply to you.
Estate tax: When you inherit a property, you do not have to pay federal estate tax. The deceased’s estate is responsible for paying estate tax. Also, the IRS threshold for paying estate tax is $12.06 million. If you’re estate planning, keep that number in mind.
What may happen is that the estate owes taxes or debts that it cannot pay. In that case, the estate must sell the property to pay those taxes or debts. That means a house you may have anticipated inheriting is sold, and you won’t get it.
Gift tax: When someone gives you property before they die, they will pay a gift tax. The taxpayer who gifted you the property will need to notify the IRS of the gift. Since it’s a gift, you don’t need to report it to the IRS.
Capital gains tax: You may be responsible for capital gains tax when you sell the property. The IRS might consider the money you make from selling the property a form of income. In that case, you may have to pay capital gains tax. But that’s not a foregone conclusion; your responsibility to pay the tax relies on the property’s fair market value and whether you can receive the home sale exclusion.
The home sale exclusion only applies if you used the inherited home as your primary residence for at least 24 months of the previous 5 years before the sale. If you are single, the exclusion is $250,000, and married filing jointly receives a $500,000 exclusion.
The Probate Process
The probate process occurs when someone dies (decedent) and leaves assets for distribution. Assets include things like a bank account, stocks, and real estate. Probate ensures that the will is administered according to the decedent’s wishes. When there is no will, the probate court will administer the estate how it sees fit.
An executor is named as part of probate. That person is responsible for ensuring the will is executed or completing probate. Part of the executor’s duties includes paying outstanding taxes or debts and ensuring that the proper beneficiaries get the appropriate assets.
Typically, the process will play out like this:
- The person dies.
- Their attorney or solicitor reads the will of the deceased person.
- The executor is appointed.
- The executor will file the will with the court.
- The probate process starts with the will’s filing.
- The probate court makes the executor’s role official.
- The executor has the legal authority to fulfill the decedent’s wishes.
Probate Law When Selling A House
Usually, the estate has taxes or debts that need to be paid. This occurs during probate and before any part of the estate goes to the heirs.
To settle these debts, the executor may sell the property to raise enough funds to pay the taxes or debts. When a house is sold during probate, the inherited house does not go to the heirs.
Tips for Selling an Inherited House
You’ve decided that selling the house is the best action that you can take. Here are some tips you should consider as you are selling your inherited home.
#1. Review the will
The presence of a will changes how the decedent’s estate is handled. If you know that a choice exists, find it and review it so you can verify their wishes and the identity of the will’s executor.
You can arrange with the executor what to do with the property before probate starts. Or, if you’re the executor, you can apply for probate and legally sell the house.
If there is no will, the state’s intestacy rules determine who should receive the property.
#2. Reach a consensus with other heirs
Multiple inheritors make selling an inherited home complicated. The complication is why you should communicate with all the co-owners. Some may want to convert the home into a rental property. Others don’t want to deal with renters or property management companies, so they want to sell it.
An open and direct line of communication is best to build a consensus on what to do with the property. An agreement between heirs will help you avoid messy, lengthy legal battles.
#3. Make sure the property has a clear title
You’ve gotten through probate, and the house is yours. You (or you and your co-heirs) can legally sell the property. When deciding a sales price, you’ll need to attend to the existing mortgage, liens, or other debts, like a reverse mortgage against the property.
#4. Sell the property as-is
If you don’t have the energy, money, or time to make repairs or renovations to your inherited property, you might consider a cash buyer. A cash buyer will purchase your property in any condition and help you clear out the house of its possessions. This is an excellent option for selling the home fast and at a fair price.
Selling your inherited home can be a complex process. The presence of multiple heirs complicates a home sale even more.
The key things you need to keep in mind when selling are:
- You can sell an inherited property.
- You should reach a consensus from multiple heirs to make the sale smoother.
- You may pay capital gains tax unless you qualify for the home sale exclusion.
- You may have to linger in the probate process for a while.
- You can sell to a cash buyer if you don’t have the energy, money, or time to repair and renovate the inherited home.
The bottom line is we understand that selling your house can be a daunting task. We Buy Houses For Cash makes the process easy and stress-free, so you have peace of mind every step of the way. There are no repairs, cleaning, or multiple showings required. Get a fair off-market cash offer and close on your timeline.