In theory, an inherited home is a great opportunity for new living quarters or additional income.
In practice, of course, things can be much messier. From the difficulty of grieving a loved one to cleaning out their property to navigating your tax requirements, it can be hard to know what to do with your new home. In some cases, inheriting a home can feel more like a headache than a windfall at first!
If you’re reeling from the fallout of inheriting a new home, we’ve got you covered. Here’s a quick guide to the next steps and the decisions you’ll need to make.
Consider the Method of Inheritance
Depending on how you inherited the property in question, you may need to take a few extra steps before you can officially get your name on the property title. Here’s what to know:
Inheritance by Deed
If your loved one left you a property by deed, you are what’s known as the “remainderman.” Upon their death, you own the property, and because your name will be on the property title, you won’t have to struggle through probate to get your hands on your new home.
Inheritance by Will
If your loved one left you a property in their will, you do need to go through the probate process. With a clear and well-made will, this process can sometimes take a few weeks or months, though the timeline extends when there are questions about the validity of the will. You’ll need to wait until the process ends before you can sell the house.
Inheritance by Trust
If your loved one left you a property through a trust agreement, you will own the home upon their death. However, the inheritance can become complicated if your loved one had other beneficiaries or dependents, so you may need to go through probate to get the property title.
Short-Term Maintenance of Your Inherited Property
Once your name is on the title, you’ll need to consider how to maintain your property in the short term. Though we’ll discuss your options for the future of the property below, maintaining and cleaning the home will be important first steps.
Assess the Condition
Visit the property to check the home’s condition, noting any issues that need to be taken care of. You’ll also want to pay for utilities and other bills, making sure these contracts are in your name. In addition, you’ll need to have the homeowners’ insurance property rewritten, or you’ll need to find your own coverage.
Sorting Through Belongings
When a loved one passes away, clearing out their home can be difficult. Not only can this process be emotional—especially during a time of grieving—but it can also be hard to organize. Don’t forget to give yourself plenty of time for breaks for processing.
Take time to go through the property, sorting through documents and belongings as needed. Sorting into piles for keeping, donation, and discard can help. You should also check for valuables that may be part of your loved one’s will, as well as helpful legal and financial documents.
No matter what you decide to do with the property, it’s important to maintain it and keep it safe in the short term. If you don’t have time to do it on your own, arrange to have someone come by and keep up the yard or clean the home. You may also want to take care of any basic maintenance and repair issues you’ve noticed.
The only situation in which you won’t have to worry about property upkeep is if you decide to sell your home for cash. In this case, the cash buyer won’t require you to invest in things like maintenance or repairs.
We’ll dig into taxes further down, but for now, note that you’ll have to make sure to pay the mortgage and property taxes. This may entail digging through the home for relevant legal and financial documents.
Long-Term Options for Your Inherited Home
Depending on your situation, you may not be sure what to do with the property you’ve inherited. This is especially true if you already own and live in a separate property.
Each long-term option will have different pros and cons, as well as different legal and financial nuances you’ll need to consider. Let’s take a look at your most practical next steps for dealing with your new home.
Moving Into an Inherited Home
Your inherited home can become your new primary residence, if you choose. However, before you go this route, make sure to get a home inspection, which can tell you if there are any major issues with the property worth knowing about.
If you choose this option, the house gets reassessed at the current market value. This means you’ll need to pay higher property taxes. However, federal law requires mortgage lenders to work with you if you’ve inherited a new home.
Selling an Inherited Home
If you already own a property, or if you don’t want to deal with the costs of moving into a new home, you can sell.
Of course, if you work with a real estate agent via the traditional home sale process, you’ll still need to invest in things like maintenance, repairs, home inspections, and landscaping. You’ll also have the home on your hands for a while, as it takes over a month to make a sale, on average.
On the other hand, selling for cash means that you don’t have to worry about investing another penny into the property. Cash buyers will give you a quote for the property as is, meaning there’s no need for you to lift a finger for maintenance or repairs.
Renting Out an Inherited Home
If you’re not quite ready to give up the inherited property, renting it out might be your best bet. Long-term or vacation rentals can earn you consistent extra income.
However, you’ll need to spend time and money making the property more marketable. You’ll also need to be prepared for the time costs of being a landlord or the financial costs of hiring a property manager. In addition, rental properties tend to come with more financial and legal responsibilities than the options above.
Note that it’s possible to change your mind and sell your home with tenants later, if you change your mind down the line.
Navigating Your Inherited Home Taxes
As we’ve hinted above, the types and amounts of taxes you’ll pay will depend on what you decide to do with the property. However, there are a few general taxes you might be facing:
If you’re like most inheritors, you won’t have to worry about estate taxes. These only apply to estates valued at over $12 million as of 2022. This applies to the property as well as the assets of the rest of the estate. If you do need to pay an estate tax, you’ll pay at a tax rate of up to 40% of the excess value.
Capital Gains Taxes
Many people selling will have to pay capital gains on inherited homes. You’ll pay based on the difference between the fair market value of the home and its final sale price.
If the property you’ve inherited is in Texas, you won’t have to pay this tax, sometimes nicknamed the “death tax.” However, if you’ve inherited a home in Iowa, Kentucky, Nebraska, Maryland, New Jersey, or Pennsylvania, you may need to pay. This tax isn’t required from certain beneficiaries, such as spouses and often children.
If you’re living in or renting out the home, you’ll have to pay property taxes. Depending on the legal nuances of the inheritance, these taxes might be lumped in with the mortgage payment.
What to Do About Co-Inheritance
Inheriting a property is always easier if you’re the only beneficiary. However, co-inheritance is common.
If everyone agrees on what to do with the property, the next steps are often simple.
For example, you might decide to refinance the home to live in it yourself while paying the other inheritors for their share. This is commonly called a “buyout,” meaning the other heirs get the cash equivalent of whatever their portion of the property is worth.
It’s also possible to own a home with siblings or family members, as long as everyone agrees on its use. You and your siblings might decide to use the property as a shared vacation home, or you might decide to rent it out and split the profits.
However, if you and your co-inheritors have different ideas about what to do with the property, things can get tricky. This is especially true if you all inherited an equal share—and thus an equal say—in the property. In cases like this, co-inheritors may end up in court, requiring a neutral judge to decide what becomes of the house.
Make the Most of Your Inherited Home
Deciding what to do with an inherited home can be a deeply personal decision. As you work your way through the legal and financial nuances, give yourself enough time and space to decide what works best for your situation.
If you decide that you’re ready to part ways with your property without the hassle of maintenance, repairs, and working with an agent, we’re here to help! Our team at Millennial Home Solutions offers a simple and convenient home selling process to get you cash for your home fast. Learn more about how we can help you sell your house.