Have you received an inherited house
Inheriting a house can be an emotional event; it often follows the death of a family member or loved one. This process, called probate, can be stressful and complicated.
It can endure for many months, especially if the deceased did not have a will and did not keep clear records of their affairs. The best way to move forward is to understand the process, to understand your options, and to understand the financial implications of your decisions.
What is probate and how does it work?
In the unfortunate event that a family member passes away, a process called probate begins. Probate is the court-supervised process of gathering a deceased person’s assets and distributing them to their creditors and inheritors.
Following the death, there is a waiting period to allow creditors to make claims against the estate. Afterward, any remaining assets are distributed to the beneficiaries, according to the deceased’s last will and testament. If there is no will, then the assets will be distributed according to state law. These assets include any property the deceased may have owned, including property.
What if there are multiple inheritors of the property?
It is very common to have other siblings or family members inherit a single property. If you find yourself in this situation, you have several options.
- Buy the other inheritors out
- Rent the property and split the profits
- Buy the property and split the profits
Do I have to pay Taxes?
Inheriting a house doesn’t automatically incur any tax liability. But what you decide to do with the house might.
Capital Gains Tax & Step-Up in Basis
If you decide to sell the property, you’ll pay a capital gains tax based on the profits earned from the sale. However, as the inheritor of the house, you’ll be protected by most of the capital gains tax through what is called the Step-Up in Basis.
The Step-Up in Basis means that you will inherit the house at the fair market value and only pay taxes on the increase in value from the date of inheritance.
For example, let’s consider you have an inherited house that the deceased had purchased ten years ago for $50,000. Now, let’s say that on the date of inheritance, the fair market value of the house is $100,000. After nine months, you sell the home for $110,000 – a gain of $10,000. As the inheritor, with the Step-Up Basis, your tax liability will only be for the increase of $10,000, and not for the overall increase of $60,000.
Do I have to pay a mortgage?
If the mortgage has a Due on Sale Clause, a non-family member might have to pay off the remaining balance of the loan. If a family member inherits the property, under normal circumstances, they can continue to make mortgage payments.
If the deceased had a Reverse Mortgage, the remaining balance is usually due within six months. The remaining balance can be paid by selling the home and using the proceeds, by taking out a new loan, or by paying out of pocket.
If the property is underwater, then the bank may agree to a short sale.
If you are fortunate enough to inherit a house free and clear, then congratulations – this certainly makes the probate process more straightforward. The deceased may have paid off the mortgage of the property before they had passed or the estate may have paid the remaining balance.
What are my options?
1. Move into the property
As the inheritor of the home, you can always move in. Moving in could be an attractive option, especially if the property you are moving into is an improvement from your current living situation or is completely paid off. Unfortunately, for many who find themselves in this situation, a move may be impractical because the property in question is located in a different city or state.
2. Rent it
Another option is to rent the property. Having some additional cash flow from an investment property can be a smart investment. Of course, this option should be considered with caution. Renting a house comes with extra responsibilities, including but not limited to property management. You may also find yourselves in a situation where the home requires significant cleaning and repairs before it is suitable to rent.
3. Sell it
Selling the house can be a more suitable option for many inheritors. Just keep in mind that there will be some tax liability associated with the sale of the home as well as agent fees for listing and selling it.
Keep in mind substantial cleaning and repairs may be needed before listing and selling the house on the open market. Homebuyers using the popular FHA loan will have stricter lending requirements, among those are the minimum property standards.
4. Sell your house fast with a home buying company
The best option for some homeowners is to sell to the home to a cash home buyer like Nebraska Home Solutions. If you’re dealing with a complicated estate sale or the overwhelming probate process and want to move on with your life, let us help. Selling your house with us can save you time, money, and allow you to move on with your life. At Nebraska Home Solutions, we strive to create a win-win solution for homeowners with an inherited house.
Fill out our online form below or call us at (402) 704-8026 and let us take your home off of your hands, no strings attached.