What Should You Know If You Inherit a House?
Inheriting a house can bring about a range of emotions. You might feel sad because it likely means you’ve lost a loved one. It can also be overwhelming to know what steps you should take next and what the financial implications are. It can also be exciting because a house can be a huge asset. So what should your first steps be if you inherit a house?
You essentially have three options if you find yourself in this situation. You can sell it, move into it or rent it to someone.
Initial Considerations
First, when you inherit a house, you’ll have to think about the legal and financial responsibilities that come with it. There may be debt obligations, for example. You also have to think about the tax liabilities that come with inheriting property, which may include capital gains and federal estate taxes.
If you inherit a home, there’s no federal inheritance tax, but some states have an inheritance tax. In most cases, you don’t automatically face a tax liability if you inherit property.
Capital gains are taxes linked to the profit you generate from an asset, including a house. If you sell the home, you may be subject to capital gains taxes. You could pay taxes on the difference between the fair market value when you inherited a home and the selling price. If you keep the home, you might be eligible for an exclusion.
Is There Currently a Mortgage?
If you inherit a home that’s paid for, you have fewer financial considerations to weigh. If the property has an open mortgage, you might assume it, which would mean you take over the payments as an heir and you pay off the debt based on the original terms of the mortgage. Some loans, including reverse mortgages, require that the unpaid balance is due either when the loan holder passes away or upon sale. That would mean as an heir, if there is an open reverse mortgage, you would be required to sell the home and then settle the remaining debt.
Did You Inherit a House with Your Siblings?
A common and also complicating scenario occurs if multiple siblings or other family members all inherit a house. This means multiple opinions might be part of the decision as to what to do with the property.
If there are multiple stakeholders, then options include a buyout. In this case, if one sibling wants to keep the home for whatever reason, they can buy the other sibling out. One of the simplest things to do is to sell the home and split the profits.
You might also rent it out and split those profits. If you can’t agree on what to do, then you may need to file a lawsuit for partition. This asks a judge to order the sale of the home. You’ll have to pay legal fees, and this is time-consuming, so you’re going to receive less than you would have without having to resort to this step.
Can You Move into the House?
If there aren’t complicating factors or if the people who share ownership of the property agree to it, you might want to move into a home you inherit. If there’s an outstanding mortgage, again, you’ll have to think about whether or not you’re in a position to take on that debt and whether it makes good financial sense to do so. You have to think not just about the mortgage payment, but property taxes as well and any other associated costs of keeping the home. If there aren’t debt obligations, you may be able to sell your current home and move in without worrying about taking on debt.
If you decide to sell the home you inherited, you have to cover any repairs that are needed and real estate agent fees and closing costs. Again, if you fall in a particular tax bracket, you’ll also have to pay capital gains on the difference between the fair market value of the property when you inherited it and what you sell it for.
Many things factor into what you should do when you inherit a home, from whether or not the home is debt-free currently to how many people you now share it with. Do your research, so you understand all financial implications before making any decisions.
By Ashley Sutphin, RealtyTimes.com
