Inherited a House? Here's What You Should Do Next

Inheriting a house often accompanies a stressful time for you and loved ones, which can make the experience more overwhelming, confusing and intimidating then it needs to be. It’s important that you take careful steps to decide how to handle the inheritance, as this is a deeply personal decision that significantly impacts your and your family’s financial future.

Should you move in and live at the residence? Sell it? Maintain ownership and rent it for additional income? Each of these options carry unique financial and legal implications.

Financial & Legal Considerations

After a loved one passes and you find out you inherited the home, the first step is to find out who is responsible for the mortgage payments – if there are any – and the tax implications.

Mortgage Payments

If the owner had not paid off the property at the time of his/her passing, then you inherit the mortgage along with the property. In this case, you are responsible for the payments moving forward on the existing mortgage or you face the risk of foreclosure, which means losing the property and the associated compensation. Keep in mind that you can typically stop or avoid a foreclosure and save your credit by quickly selling inherited property.

If you’re not sure if there is an existing mortgage or who may hold it, contact the lender. You can typically find that information on the title. It’s also recommended that unless you are certain of all mortgage debts, that you request a credit report for the diseased person. That would show all outstanding loans.

Capital Gains Tax

This only comes into play if you decide to sell your home. In this case, the profits may be subjected to a capital gains tax, which is determined by the fair market value of the home upon the ownership change. Simply put, the capital gains tax is a tax on the difference between the sell price and the value of the home at the time of inheritance.

For example, let’s say your parents bought their home for $100,000 and it’s worth $400,000 today. The tax basis of the inherited home would be $400,000. So, if you sell this home for $400,000, there are no taxable gains. But if you sell it for $450,000, you are responsible for paying a tax on $50,000.

Estate & Inheritance Tax

Both estate and inheritance taxes are levied on the transfer of the property at death. An estate tax is levied on the estate itself, and inheritance tax is levied on the heirs of the deceased. The AARP reports that 17 states and the District of Columbia have state-wide estate or inheritance taxes. The good news for Florida residents is that we do NOT have a separate inheritance tax. Heirs and beneficiaries in Florida also do not pay income tax on monies received from an estate because inherited property does not count as income for Federal income tax purposes.

If the estate’s combined gross assets and taxable gifts exceed $11.7 million, then federal estate taxes may apply.

Property Tax

If you decide to live in the home or keep it as a rental, you will be responsible for property taxes. Depending on the state this can be a significant expense.

Probates

When a homeowner passes, his/her property is distributed according to the specific instructions outline in the will or living trust. If the decedent didn’t leave a will or living trust, or if the home is not listed in it, then the probate court determines the process.

Each state has its own statutes on how real estate is handled in probate, but generally speaking, the complexity of this process is primarily dependent on the stipulations in the will and the wishes of the heirs. The court generally needs to approve the sale of real estate before the transaction is made. Even if the inheritance is clear in the will (i.e. the home goes to all siblings), additional mediation may be necessary if one heir wishes to keep the property and another heir wishes to sell or if multiple heirs wish to keep the property for themselves.

If You Decide to Sell…

After evaluating their financial situation and all the tax and legal implications of their options, many heirs ultimately decide to sell the inherited property. And for good reason: It saves you from costly upkeep and maintenance and tax burdens, and you could even stop or avoid a foreclosure and save your credit.

With Hamby Housing, we make this process simple and efficient.

• Get a competitive cash offer in 24 hours.
• No repair costs! No need to clean, paint, stage or perform other repairs. Sell the home as-is.
• No need to set up showings. We’re the only ones viewing!
• Close in as little as 14 days. And you can pick your moving and closing dates.
• No realtors. No fees. No commissions. No stress!

Inherit a home and think you may want to sell? Contact the Hamby Housing team today!