What is the best course of action when you inherit a house from a loved one after their passing? This question can be incredibly difficult to answer for the majority of people who need to ask it. Overall, inheriting a house can be a stressful, yet rewarding experience for those involved.
But it is important to thoroughly examine the situation before deciding on the best option for you. Read on to learn five essential questions to ask yourself and professionals once you have inherited a house.
Five Questions to Ask on Inheriting a House
The individual situation will greatly influence how the process moves forward when you’ve inherited a home. For example, if you jointly inherited with a sibling or other relative, there are going to further steps you may need to take. Here are some factors and questions to consider during your decision-making process.
1. What Is the Local Probate Policy?
The first step for any inheritance process is to understand how the will works, and finding a probate attorney is generally the best way to do so.
Probate will be the initial phase of a will, as it involves the judicial process it has to go through in order to move forward as a legal, binding document of the deceased’s wishes.
Once you become appointed as the executor of the will once probate is complete, the attorney will be able to advise you on moving forward with it.
2. What Are the Home’s Expenses?
Immediately after inheriting a house, you should look into what the expenses associated with it are.
Some examples could include a mortgage, home association fee’s, and utilities. Regardless of whether you intend to do with the property, you should keep these up to date to avoid issues in the near future once you reach a decision.
3. What Is the Home’s Value?
If you are thinking about selling the inherited home, you should reach out to a real estate agent about the home’s market value.
Essential factors on the value could include the age of the home, the neighborhood, nearby properties, and updates on it.
4. What Are My Options?
Overall, there are three main options when inheriting a home. You could sell it, live in it, or rent it out.
The best decision depends on if you are the sole owner of the home.
Furthermore, if you do want to sell the home, it is usually best to do it as quickly as possible as specific tax implications can complicate holding on to it for a long time.
That said because inheriting a home can come with many emotional and personal complications, it can be hard to rush it.
5. What Tax Implications Will It Have?
Regardless of what you choose to do with the home, there will be some tax implications for the decision.
When you inherit a house, it experiences what is called a stepped-up cost basis. This means that the property’s market value will be based on the date of the former owner’s passing.
If you sell the home, if the property has appreciated since it was purchased, you will only have to pay the long-term capital gains on the sale price exceeding that stepped-up basis.
If you live in the home, there is the potential for higher property tax due to the stepped-up basis. That said, living in the house for a few years can help you avoid capital gains that you would typically have to pay when selling immediately.
Finally, if you rent the home out, you can use the taxable income from the home towards depreciation and improvements. That said, the IRS will have to be reimbursed if you eventually sell the house.
Make the Best Choice for You
Ultimately, there is no right or wrong thing to do when inheriting a house. But, always make sure you reach out to a few professionals who have experience in the area so they can give you their input from a third-party viewpoint.
As well, if things get messy with others involved in the will, the best option is usually in civil court to ensure everyone gets their share.
Thinking about selling the home for cash? Check out our recent post on all the benefits of selling a house for cold-hard cash.