Inheriting a house can be a significant benefit to your long-term financial situation, as you can either sell it for a profit or use it as a residence or rental property. However, there are several factors to consider, such as whether you want to keep the property and why, how you will manage any outstanding debt on the property, and how to work with other heirs.
Legal Process of Inheriting a House
The legal process of inheriting a house typically involves going through probate court, where an executor carries out the will’s terms to its legal extent. The executor must address tasks such as maintaining the homeowner’s insurance, identifying and maintaining payments for any liens, addressing utilities, ordering an appraisal, researching property taxes, and finding and allocating belongings. Although the inheritor has the right to ownership, they do not own the house until their name is on the title.
Considerations for Keeping or Selling an Inherited House
After going through the legal process, you need to decide what to do with the house. If you inherited the property with a sibling, you might start with a discussion to gauge everyone’s feelings. One option is to arrange a simple buyout, where one sibling can pay a lump sum or make monthly payments to the others. You can also sell or rent the house together as business partners or rent it out to a reliable tenant. If you decide to rent out the property, you might consider hiring a professional property manager. Selling the house after the death of a parent is also an option. If you and your siblings cannot agree on how to divide or own the home, you might need the help of an attorney to find a solution.
Tax Implications of Inheriting a House
Taxes must also be a part of the conversation when inheriting a house. The federal government doesn’t tax inheritances, and only a few states do. The IRS considers the “purchase price” of the home to be the market value at the time of the owner’s death, which can impact your earnings if you sell the property later. Inheriting a house can come with some tax headaches, depending on the size of the estate. While there is no federal inheritance tax, there is a federal estate tax taken out of the total estate of the deceased person. If your parents’ estate is in the tens of millions, it could be subject to hefty federal estate taxes. Some states also tax smaller estates.
In conclusion, inheriting a house can be a significant financial benefit, but it also comes with several considerations. It is essential to understand the legal process of inheriting a house, decide what to do with the property, and consider any tax implications. Consulting an attorney or other professionals can help make the process smoother and ensure you make the best decisions for your financial future.