You’ve inherited a house you really don’t want. You’ve got three viable options: buy it, give it away, or sell it. If you didn’t plan on being a landlord or second-home owner, selling is largely the easiest solution, and it makes sense to give yourself a little time to clear probate and get a clear title before making any major moves. Don’t plan on listing, don’t plan on renovating, and by all means, don’t allow others to rush you into anything. Why is patience important?
The inherited house has legal and financial encumbrances connected to it that a regular house purchase does not. There might be an existing mortgage, back property taxes owed, liens or other heirs waiting to claim what they believe to be rightfully theirs. You cannot sell any early weeks should be dedicated to obtaining documentation and learning exactly what you have inherited instead of losing sleep over countertops.
What to Do in the First 30 Days
Secure the property and determine what the estate is worth legally. This includes resetting any locks if necessary, making sure the homeowner’s policy is current (a lot of policies lapse or convert to a limited “vacant home” status as soon as you expire), and tracking down the will, deed and mortgage statements. An empty house with lapsed coverage is an enormous liability as the result of a broken pipe or burglary can be a big headache in a hurry.
Then determine the probate situation. If it is probated, it usually takes six months to a year or more, given your state and if any holdouts challenge the will.
Some property is held outside of probate through the use of a living trust or a transfer-on-death deed so those items will be available sooner. An estate lawyer consultation (costs a couple hundred dollars) will give you an idea of where you are at. While that estate investment sits idle, the owner still needs to make payments on the normal things: the mortgage, property taxes, utilities, insurance. They do not cease once the owner has deceased and if payments are late even during probate, the owner can lose the property back to foreclosure.
Understanding the Tax Side Before You Sell
The one tax law loophole that’s most significant to the “inherit your house tax-free” plan is called the step-up in basis. If you inherit a home, it now has a new cost basis equal to the fair market value of the home at the time of the original owner’s death rather than the original purchase price. So if your very frugal parents bought a house 30 years ago for $80,000 and it’s worth $400,000 when you inherit it, your basis is $400,000. Sell it in the next week for $410,000 and you’re only taxed on the $10,000 of appreciation.
That’s where doing a fairly quick sale is often logical from the pure tax perspective. The longer you keep the home and the more it outperforms the stepped-up value, the more capital gains tax you might be faced with when you sell.
Seek an official appraisal or at minimum a recorded valuation as of the date of death, because that gives the benchmark and you’ll need proof if ever challenged by the IRS. Estate tax is a secondary concern, only a handful of people need to think about it, because the federal exemption is in the low millions, but a few states have inheritance or estate taxes at much lower levels.
Sell, Rent, or Keep It?
Run the decision on numbers and truthfulness about your home life, not guilt. It can be a cash flow, but it puts you in the landlord’s shoes, with maintenance calls, vacancy risk, and tenants to deal with and if the house is a little tired you may need to shell out $10,000 to $30,000 to bring it up to the mark. People like to keep their homes for emotional reasons, but emotion costs money every month in taxes, insurance and maintenance and that bill doesn’t go away.
Selling is one of two tracks, and which one is right depends on market power, the condition of the property, and time frames. A full-merchandised MLS listing, fluffed by an agent, gets the highest sales price, but runs anywhere from a few weeks for a sunny turnkey great market, to two months or more for a property that needs work, is not convenient to the listing agent’s office, and is say a thousand miles away.
The other route is selling as-is to a cash buyer. If your priority is selling houses fast, companies that purchase inherited properties in their current condition spare you the cleanout, the repairs, and the months of carrying costs. You’ll generally accept a price below full retail in exchange for speed and zero hassle, so the trade is real. For heirs who live out of state, who can’t agree among themselves, or who simply want the chapter closed, that certainty is often worth the discount.
Handling Family and Multiple Heirs
Disputes between heirs are by far the most common reason that an inherited house drags on for years. When multiple brothers and sisters inherit one property, they all need to concur on what happens, and just one objector can block the sale. Inheritance tax, the sooner these conflicts are resolved, the more easily it is to avoid resentment or a court battle. When one party wants to keep the house and others prefer to be paid out, one reasoned approach is a buyout, where the remaining heir gains ownership rights by refinancing or paying the heirs their share of the value the house has been appraised at.
If ownership can’t be agreed upon and negotiations have fallen through, any co-owner will be able to put the dispute into the courts and have the house sold by order of the court. This approach is yet very slow, and it’s costly, both monetarily and in the irreversible tensions it causes within the family. Mediation can save you tons of money and keep the power where it belongs, in the family’s hands. Why not do it now and put discussions into writing, even if it’s just an email?