Inheriting a house can make a huge difference in your life. Though it might be a bit overwhelming at first, if you manage the property right, and make informed decisions, it could lead you to a brighter financial future.
It can be pretty tricky to deal with the house you’ve inherited. Do you move in? Do you sell? This comprehensive guide to selling an inherited house will provide you with some valuable insight and help you on your way to making well informed decisions.
I inherited a house and want to sell it. What now?
When you inherit a house there are a lot of things to consider. Does the house still have a mortgage? What are the tax obligations? Are there other heirs that need to be considered? These questions can add up quickly and it’s never a bad idea to seek professional advice when you inherit a house.
There are a multitude of different advisors that you can employ to help you along the way.
If you choose to seek advice from an attorney, make sure that they have real estate and estate planning experience or you could end up spending money unnecessarily to compensate for their research hours.
That being said, lawyers are expensive and it is completely possible for you to sell your inherited house on your own as long as you are willing to put in a little extra effort.
Benefits of selling a home you inherited vs living in it
There are a few big financial benefits to selling the house that you’ve inherited instead of living in it. Not everyone wants to part with an inherited house due to the sentimental value associated with the property and this is completely understandable. If this is not a factor, you will likely see a more direct financial benefit from selling the property.
One of the major benefits of selling an inherited house is that you receive a lump sum of money instead of saving money over time by living in it. This can provide you the capitol to make investments and further your financial gains.
There are also a multitude of things that need to be paid right away such as taxes owed, a mortgage, homeowners association fees and more. Inheriting a house can both feel like an honor and be completely overwhelming at the same time due to fees associated with the property. You can avoid continuing to pay these costs and recuperate any expenses you incurred along the way by selling the property as fast as possible.
Financial and Legal considerations when selling an inherited home
There are a myriad of financial and legal factors to consider when you’ve inherited a house. If there are taxes owed on the property you need to know. This information can be obtained from the county tax collectors office.
If your inherited property is under mortgage you will pay both your taxes and mortgage payment to the lender associated with the property and they will deposit into an escrow account. This is not a complicated process, but it can be costly, and is yet another reason to get your house on the market and sold as quickly as possible.
Federal estate tax is an important financial consideration when you inherit a home. This is the tax associated with transferring ownership of a property after the death of the original owner. You will need to file a federal estate tax return within 90 days of the transfer of ownership and will typically be charged around 18% of the property’s overall value. If the property exceeds the exemption amount set forth by the federal government, it will be taxed at the top rate of 40%.
Understanding your potential capital gain is hugely important as well. When you sell your inherited house, how much is actually going to end up being a profit. Being that you inherited the house, you are almost guaranteed a profit from selling it, but you will need to calculate what expenses have been associated with the property and subtract that from the amount that the property is sold for.
What to do if you inherit a house with a mortgage
If you’ve inherited a house that has a mortgage, you have a few different options. One possibility is to contact the lender and see if you can transfer the loan to your name and continue paying the mortgage. This will be dependent on your credit, the payment sizes that you can afford to make, and the discretion of the lender themselves. If you decide to continue paying the mortgage on the house make sure to stay diligent to avoid a mortgage foreclosure.
When you inherit a house you need to find out right away if the previous owner took out a reverse mortgage. A reverse mortgage is essentially a mortgage loan that doesn’t require monthly payments. The loan balance increases over time, and while a house with a reverse mortgage can still be inherited, the person who inherits it must pay that loan.
If you sell the house you can use a portion of the money to pay back the reverse mortgage lender. Unfortunately, it is possible for the reverse mortgage to exceed the value of the property itself. In this case, you will need to sell the property and will more than likely never see a profit.
How to deal with taxes on sale of inherited home
The first step you need to take when dealing with taxes associated with an inherited property is find out if there is an outstanding balance. You can easily call the county tax collector to find out if there are any backed taxes owed on the property.
The next thing to consider is capital gains tax. When you sell a property that you’ve inherited you are required to pay taxes on the value of that property, but the taxes are based on the value of the property at the time of the death of the previous owner. When you are trying to understand what your overall profits will be after selling the property, you will need to factor in capital gains tax and subtract it from the amount you receive from its sale.
To report the sale of an inherited home you can do so on a schedule D form also known as a form 1040 or 1040-SR. It is important to stay on top of any and all tax obligations or you could face serious fines or even imprisonment.
The bottom line when selling inherited home
An inherited home can change your life. It can provide a huge monetary gain and have a huge impact on your financial future, but you need to remain diligent and well-informed. If you don’t feel comfortable, or have the time to commit to dealing with all of the details associated with this process, it would behoove you to seek advice from an experienced professional such as a registered agent or real estate lawyer.
It takes a fair amount of work to deal with an inherited home but whether you decide to go at it alone, or get professional help, with the proper steps an inherited house can make a hugely positive impact on your financial life.