Are you wanting to learn how to sell an inherited house? Selling an inherited property can affect your finances dramatically. Things like lawyer fees, utility bills (and other regular or monthly payables), repairs, and real estate commission, alongside the federal tax implications, should all be considered. We have created this comprehensive guide to help you through the sale process (and not only) when you find yourself inheriting a house you wish to sell.
Really, it’s the preparation that is the most challenging yet most critical activity before putting the property up for sale. The aesthetic value of the estate will play a vital role in whether the sale is successful or not. Below are some pointers to give you an idea of what to watch out for.
How to Sell a House You’ve Inherited – The Process
- The previous owner’s personal effects – This is a deeply emotional task that must be done with due diligence. Despite how painful clearing out the home may be, it is important for the house’s marketability that you do manage to clear out the area of all the personal effects of the previous owner. You can host an auction, estate sale (the best choice if you are not local to the property or lack the required energy and time), or garage sale (the most fitting of all options) to maximize the value of the personal belongings. Alternatively, you can hire a professional to handle the sale of the property’s belongings for you or simply donate them to thrift stores, institutions of your preference, or charities. In the last case, expect a tax write-off, too.
- House maintenance during the selling process – You might be just a temp owner, but that does not mean that you don’t have the responsibility to keep up with the inherited property. This also includes lawn maintenance. In some communities, not taking care of the yard properly warrants a penalty from the homeowners’ association.
- Insurance – This aspect of the asset should not be taken for granted. The majority of insurance policies give a window of 30 days of vacancy before the insurance becomes void. This means that you will probably have to buy a plan that covers not-occupied properties as you are waiting to sell the asset.
- Utilities – Things like storm damages and emergency plumbing issues may come into play at any given time. If the property remains vacant, someone will have to check on it periodically and look after it to avoid unnecessary utility-related costs.
- Security – A vacant property is more prone to vandalism. Many thieves out there invade empty homes looking for anything they could sell, from copper wires and pipes to cash. Ensure you secure the home enough to deter unwanted guests. It is also advised to frequent the home.
- Choose a real estate agent – The real estate’s experience in selling inherited homes can determine the success of selling a property. Make sure the selected one has a good reputation and the needed tenure, license, and credentials. They should also be able to handle conflicts arising from state taxation laws and proximity issues. With so many different regulations and rules (even within different neighborhoods of the same state), it is paramount to find a real estate agent with inherited property expertise in the home’s local area.
Should You Fix It Up or Sell It As-Is?
Everything depends on how well the previous owner took care of the inherited property. Most of the time, these assets are not flawless, while some of them are in really bad shape, needing thousands of dollars in repairs. So, after you do some general cleaning (the more meticulous, the better as it will help uncover issues that need to be addressed), you can assign all the required repairs. You might be called to solve problems with something as simple as the replacement of a doorknob or as large as the replacement of the entire roof. The condition of the bedrooms, the bathrooms, and the kitchens are also under the microscope of buyers, so you may need to do some upgrades or facelifts there, too. Also, pay attention to the curb appeal of the property by taking care of the landscape and the exterior look of the home. To know what requires professional contractor repairs, do consider having a home inspection.
Now, if you want to sell the home as-is, you definitely have more to think about before putting the asset up on the market. For a house that has little maintenance and has been well-kept throughout the years, you will potentially need to simply clean out the deceased’s personal belongings and do no further works or any remodeling to the property structure. Truth be told, spending money to fix or bring back to shape a property that is in bad condition only leads to more loss than gain for you. If the asset is in good shape, remodeling it (minor repairs) may be worth considering, though, to boost its maximum sale value. And, let’s not forget that any money you invest in the house can be written off, so you have tax-related gains as well.
Can You Force Your Siblings to Sell the House You’ve Inherited?
In a nutshell, nobody can force the sale, regardless of whether one of the siblings wants to sell (or keep) the property. And, although a sibling CAN sell their own share of the asset, chances are they will not find a buyer willing to purchase just a portion of a property, especially if they sense they are amidst a conflict between disagreeing sisters or brothers.
The sibling that wants to sell the house can request a court to issue a sell order. In this case, the sibling has to use the services of an attorney to write to all parties involved (everybody with a share of the property) and set a VERY strong case as for the reasons they want to sell.
When it comes to siblings that live in the inherited house, again, nobody can force them to leave or sell the property, without a court exclusion order. However, this is a very difficult process, and the sibling that wants to sell the house and make the other brother or sister move out of the house must give a very compelling reason for their demand.
How Much Tax Do You Pay When You Sell An Inherited House?
Know that a decision to sell an asset you have inherited comes with some tax implications that you will be asked to deal with. This is because homes are subject to inheritance tax as they are part of an individual’s estate. So, unless the beneficiary is a surviving spouse, you will need to pay inheritance tax (aka capital gains tax) for the inherited property.
Unfortunately, although the tax law gives homeowners a generous tax exclusion for sales up to $250,000 ($500,000 for married homeowners filing jointly), you cannot qualify for it unless you have used the inherited home as your main home for 24 months out of the previous five years before the sale.
Note, though, that the inherited property is probably worth more than it used to when the deceased individual purchased it. So, if you want to sell the house, you would be called to pay enormous capital gains taxes. The good news is that the tax basis of the property is stepped up when you inherit a house. This means that your basis will be the estate’s current value. For instance, let’s assume that you have inherited a property that was bought for $180,000 some years ago and is now worth $400,000. You will receive a step up from $180,000 to $400,000 (from the original cost basis). If you decide to sell the asset immediately, you won’t need to pay any capital gains taxes. Things change if you keep the estate and sell it within the next few years or so for $450,000 as you will be called to pay capital gains on the difference between the sale value and the stepped-up basis (so, you will owe capital gains on $50,000).
In the opposite case, meaning you did not inherit the property after the passing of the owner but was given to you, the tax basis would be $180,000. Should you decide to sell the property, you will be asked to pay capital gains on the selling price and the tax basis of $180,000.
Related article: Common Tax Questions When Selling a Probate House
Inheritance Tax vs. Estate tax
These are two totally different things. The first is paid out of the estate of the deceased while the latter comes out of your pocket (the beneficiary). An inheritance tax is paid by individuals that receive inheritances in Pennsylvania, New Jersey, Nebraska, Maryland, Kentucky, and Iowa as these states tax these individuals, according to the American College of Trust and Estate Counsel. In some cases, the children and spouse of the deceased are exempt. However, the estate size and asset types-related rules vary. You may, nevertheless, also be hit with a double whammy (see Maryland, where you may need to pay both the state and the IRS).
The estate tax, on the other hand, is the tax the homeowner needs to pay on the right to legally transfer their property after their passing. Estates of less than $11.58 million are exempt from the tax, so you have dim chances to actually pay it. Estates above the threshold are taxed at their current fair market value rather than how much money the homeowner paid for them (see IRS Publication 559 for more details).
Note, though, that several states also charge estate taxes. Therefore, you may end up paying both a federal tax and state tax. If you sell an inherited house in Washington State, there is an estate tax but no inheritance tax.
As you can understand, the steps to sell an inherited house are complicated. The process requires that you consider quite a few things. We buy inherited properties all the time and can complete the process very quickly. So if you have a house that you’ve inherited and would like to sell with a realtor and repairs, contact us today, and let’s get the process started.