Last Updated : September 2, 2024 by Rebecca Daneault
Selling a home in general can be a daunting task, but selling inherited property can make things ten times more complicated. Whether there’s a remaining mortgage or the house is paid off, there are still several financial implications to consider. And that’s assuming you’re the only heir.
If a loved one recently passed away and left their home to you and you’re considering your options for selling, this comprehensive guide is for you.
Below, we’ll discuss everything from probate to taxes to splitting the inheritance amongst siblings, and more. We’ll also answer some of the most commonly asked questions and provide some expert tips and tricks to make selling inherited property as quick, easy, and painless as possible.
Unfortunately, there’s no one-size-fits-all answer to this question, as it ultimately depends on a number of unique factors, such as where the house is located and the value of the decedent's estate.
In most cases, the property will need to go through a legal process known as probate before it can officially be passed on to you. This is generally true even if the property itself has been paid off. In some instances, the ownership of the property may be passed on through a transfer-on-death deed, or in accordance with the rules of the trust.
For the purposes of this guide, however, we will focus on the most common cases, in which the first step of selling an inherited home will require you to go through probate.
When a person dies, all their assets, from their bank account balances to their furniture, vehicles, and other property, automatically become part of their estate. In order to distribute these assets to surviving loved ones, the estate must undergo a legal process known as probate, which often includes probate sales when real estate is involved.
During the probate process, the person charged with overseeing the estate (known as the executor or personal representative) must ensure that all outstanding debts are paid and necessary estate taxes are settled before the remaining assets can be transferred to the beneficiaries. This oversight also applies when selling a house in probate, as court procedures and approvals may be required.
Depending on the estate’s size and complexity, probate can take anywhere from a few weeks to several months, or even years. Disputes over asset distribution can extend the timeline further, which may affect when and how a property can be sold and whether you can legally sell a house in probate before the process is fully complete.
Once the estate is settled and it’s determined who will inherit the decedent’s home, the title can be transferred into their name. The beneficiary officially becomes the new owner of the property and is responsible for maintaining the home and paying any debts associated with it, including the mortgage.
At that point, if you’re the sole heir, you can begin the process of selling the property. If the inheritance is shared among multiple beneficiaries, additional considerations come into play, which we’ll explore below.
Properties exempt from the probate process include:
If you’ve recently inherited a home and are unsure exactly what to do, there are a few options.
This may be an attractive option if you currently don’t own a home, or the house you inherited is bigger, better, or in a nicer location than the property you currently own.
This option becomes complicated, however, if you are not the sole heir. Then, you’d need to all agree on whether to keep the home and, more importantly, who gets to live there.
Renting out the property you inherited can be a good way to make some extra income, but keep in mind that being a landlord isn’t easy.
As the property owner, you would be responsible for maintaining the property, including any necessary repairs and renovations that may be needed. Not only can this become costly, but it can also be a hassle—especially if you don’t live near the rental property.
The third option is to sell the house and keep the profits. This is the approach most beneficiaries of inherited property tend to go with, especially when selling a parent’s home after death.
Understanding how inherited property is taxed when sold can help guide decisions about timing and next steps. Several types of taxes may apply.
Estate tax is assessed on the value of the decedent's estate. It is not a tax that is levied on the beneficiaries.
In most cases, estate taxes only come into play with substantial estates worth at least $13 million. (If you’re unsure whether your loved one’s estate falls into this category, the IRS keeps an updated chart.)
There are certain cases in which some of the assets within the estate may need to be sold in order to settle outstanding debt. When this happens, whatever property is sold will no longer be available for the designated beneficiary to inherit.
Unlike the estate tax, which is paid by the estate, the inheritance tax is paid by whoever the property or other assets are bequeathed to. While there is no federal inheritance tax, several states do assess inheritance tax, which can range anywhere from 2% to 16% or more.
Some states also set an exemption amount. In other words, no inheritance tax is due unless the value of the inheritance exceeds a certain threshold. So, for instance, if your state has set a threshold of $10,000 and the value of your inheritance is $15,000, you would only owe tax on the excess $5,000.
The decedent’s spouse and children are typically exempt from inheritance taxes. If you fall into either of these categories, be sure to check with your state’s tax department to verify.
A sale may trigger capital gains taxes, depending on how the property was valued and whether it increased in value after the owner’s death. Whether capital gains tax applies depends on several factors.
In the context of a regular home sale, fair market value (FMV) refers to the value of the property if you were to sell it today on the open market.
In the case of an inherited house, the FMV is the value of the property on the date of the owner’s death.
In tax terms, the FMV of the home you inherited becomes its basis. You would only have to pay capital gains taxes if you sell the house for more than its basis.
For example, if the FMV of the home you inherited is $300,000 and you sell it for $350,000, you would only owe capital gains taxes on the extra $50,000.
If the state you reside in assesses income tax, you may be required to pay capital gains at both the federal and state level. We recommend discussing this with a tax professional.
The IRS offers some exclusions and exemptions. Again, we recommend speaking with a tax expert or, at the very least, checking the IRS website to determine your eligibility.
If the property still has a mortgage, the first step is to ensure that the monthly payments continue to be made during the probate period. These payments are typically issued from the estate until it’s settled, and the property is transferred over to the rightful beneficiary.
Once the property is officially transferred, the new owner(s) would then assume the mortgage payments. At this point, you will want to contact the lender to get the loan transferred into your name. (Note: this is an essential step if you plan on selling the property!)
If there’s no mortgage on the home, the process becomes much simpler. As the property’s new owner, however, you would still be on the hook for other expenses, like utilities and property taxes.
In either case, you will also need to contact the local records office to have the deed changed over to your name. To do this, you will need certain documentation, including but not limited to:
Copy of the death certificate
Statement from probate court
Probated will, gift deed, or transfer-on-death deed
Again, this is necessary in order to sell the property.
A property’s title is a legal document that establishes ownership and serves as evidence of the rights and interests associated with the home.
Title disputes, such as liens, encumbrances, unpaid taxes, or past due mortgage payments can impact the ownership or legal rights to a property. You’ll want to determine if anything like this exists and how to properly rectify it if so.
The condition of the home will determine whether you can sell it right away, or if you’ll need to plan another course of action. Obviously, the better the condition, the easier it will be to sell, and the more likely you will be to get the best possible price for it.
If the condition of the property is outdated or in disrepair, you have a couple of options. You can either invest in the repairs and renovations needed, or you can sell the property “As Is.” The latter should be relatively quick and easy—provided you work with the right real estate investor.
At House Buyers of America, for instance, we specialize in buying homes as is, regardless of their condition. Plus, we pay cash and can close in as little as a week.
If the property you’ve inherited is not in the best of shape, selling it for cash may be the best option for you.
There’s no guarantee that the market conditions will be ideal at the time you inherit a property.
If things aren’t great, and you decide to hold onto the property until the market rebounds, you’ll need to factor in how much you’ll spend over the course of that time on things like property taxes, utilities, insurance, maintenance, etc.
In reality, unless you plan on keeping the property for at least five years, the best time for selling inherited property is now. Otherwise, you’ll not only risk the condition of the property itself deteriorating, but you’ll also incur additional maintenance expenses in the meantime.
Lastly, there’s no way to ensure the housing market will be in much better shape five or even 10 years from now. So, you could potentially be in an even worse position down the road.
If there are multiple heirs, selling a property can become more complex, especially when inheriting a house with siblings. All beneficiaries must agree not only to sell, but also on how the sale will be handled, when it will occur, and at what price. Situations where two siblings own a property and one dies often introduce additional legal and emotional considerations that can complicate decision-making.
Challenges may arise if one heir wants to move forward while another does not, or when a beneficiary living in the inherited house affects timing and use of the property. In some cases, an heir may choose to sell their share of inherited property rather than remain tied to a prolonged disagreement.
When consensus breaks down entirely, such as when a sibling will not sign probate, the process may stall and require legal intervention. At that point, understanding the options for selling jointly owned property becomes critical, and the courts may ultimately need to determine how the sale proceeds.
The process of selling an inherited property can be grueling, costly, and sometimes emotional. Here are a few potential issues to prepare and plan for in advance.
Financial Woes - In addition to taxes, there may be several other obligations that come with the property, such as utilities, mortgage payments, or property taxes. And unless you sell your house As-Is to an investor, you may also be on the hook for the costs of repairs and renovations..
Personal Conflict - Whether you’re the sole beneficiary or there are multiple heirs, you could find yourself in conflict with other family members. To avoid this, it’s always best to be transparent and, if possible, enlist the help of a neutral third party to oversee and sort everything out.
Tax Messes - Since there are many tax-related issues associated with selling inherited property, it’s extremely important that you do your due diligence. Unless you’re an expert in this area, it’s in your best interest to consult with a tax accountant.
Unrealistic Expectations - While you can certainly make a profit from selling an inherited home, it’s important to be realistic and take into consideration the condition of the property, the state of the market, and the many expenses that may offset the proceeds.
Shortsightedness -While selling through a realtor may seem great on the surface, a quick cash sale may actually be the better choice because there is less to worry about in terms of investment of time and money. Take some time and carefully weigh your options.
Here are a few tips and tricks from our seasoned experts on how to sell an inherited house.
As mentioned, you’ll need to know the property’s basis to determine what you may owe in taxes, so the first step should be obtaining a time of death appraisal (also referred to as a historical appraisal). This will establish the value of the property at the time of the passing.
The IRS states that a time of death appraisal must be completed within six months of the deceased owner’s passing. It also must be performed by a qualified appraiser. Ask around for recommendations or search the American Society of Appraisers’ online directory.
Before you start cleaning out the property and preparing it for sale, consider your options and decide how you plan to move forward. You can go the traditional route and work with a realtor, or you can sell the property to a cash buyer.
Remember, the longer you hold onto the property, the more it’s going to cost you in the long run. If you sell the house As-Is to the right investor, the process can go much faster and be less of a hassle.
If you’ve decided to go with a traditional sale, then you’ll need to clean out and remove all the furniture and other belongings from the property. This can be a time-consuming and emotional process. It’s necessary, though, if you want to make the home attractive to potential buyers.
For this step, you’ll also need to determine what you plan on doing with everything you’re removing from the home, whether it’s to keep it, sell it, donate it, or toss it. If this becomes too emotional, you may be better off handing the property over As-Is to a cash buyer instead.
For some, the goal may be to make as big a profit on the sale as possible. For others, it’s more about getting rid of the property as quickly and painlessly as possible. Again, you’ll need to weigh your options and determine what makes the most sense for your situation.
Regardless of whether you decide to list the property with a real estate agent or sell it to a cash investor, you’ll have to decide who you’d like to work with.
For those looking to go the traditional route, ask friends or family members to recommend a Realtor—preferably one who has experience selling inherited property.
If you choose a cash sale, do your homework. There are plenty of players on the field, but many lack the experience and trustworthiness to handle such an important transaction.
House Buyers of America has been in business since 2001, has an A+ Better Business Bureau rating, and a proven track record as one of the largest home buying companies in the US.
Once the house is sold, you’ll be able to collect the proceeds. Keep in mind that while you may receive a higher offer from a traditional buyer, that profit will be reduced by several other expenses, such as renovations, closing costs, and realtor fees.
A cash sale, on the other hand, eliminates all or most of these fees and expenses. So, at the end of the day, what you walk away with from either transaction might not be that far off. Plus, you’ll save time and sell the property much faster if you do so for cash.
The longer a house sits on the market, the costlier it becomes.
A house that remains vacant can incur significant costs, such as utilities, maintenance, insurance, and property taxes. If it sits long enough, you could be looking at additional expenses for repairs and renovations. You’ll also be at the mercy of an ever-changing market. A quick cash sale eliminates these risks.
Being a landlord can be time-consuming and frustrating.
If you’re considering keeping the property and renting it out, be sure you are fully aware of everything that doing so will entail. Or dodge this bullet entirely by selling to a cash buyer.
Inherited properties are often in poor shape.
In many cases, the deceased homeowner may have been elderly or ill at the time of their death, which means the property may have been too difficult to maintain. Repairs and renovations can be extremely costly, not to mention time-consuming.
Limit your tax liability.
Because the fair market value of an inherited home is based on the value at the time of death, selling it quickly could result in a more favorable outcome tax-wise. Specifically, if you sell the property fast, it won’t have as much time to appreciate, therefore capital gains tax may be lower.
Save money and avoid the hassle.
It takes time to sell a home. It also costs money to hire a realtor, get the home ready for sale, stage the property, list and negotiate, and more. You can avoid all of this by selling your inherited property for cash instead. Receive a quote right over the phone, pay zero in closing costs, and walk away without having to make a single repair.
The mortgage must still be kept current. This is typically paid through the estate until the property can be transferred to its new owner. At that point, whoever inherited the home will take over the payments.
Whether or not you sell or keep the home you’ve inherited is ultimately your decision. In most cases, selling is the best option, as it allows you to liquidate the asset and collect the monetary value of your inheritance more quickly.
The short answer to this is yes, however, there are some caveats to consider. Generally speaking, an inherited property can be sold while in probate, but the process must be overseen by the court. If you are in this situation, it’s best to work with an investor who has extensive experience dealing with probate sales, like House Buyers of America.
Unless you inherited the home from a foreign estate or non-resident alien, you will not need to report the transaction to the IRS. (If either of these scenarios is the case, speak with your tax advisor.) You will, however, be accountable to the IRS once you sell the property.
While there’s no legal limit for how long you have to sell a property you inherited, if you don’t sell quickly, you could find yourself on the hook for a variety of other expenses. Furthermore, the market could change, and you could end up paying more in capital gains if you hold onto the house for too long.
Have more questions about selling an inherited property? Our experts would be happy to discuss your situation and help you make the most informed decision–even if that means working with someone besides us! Get in touch today.
If you're unable to sell quickly, you could find yourself on the hook for a variety of other expenses. Furthermore, the market could change, and you could end up paying more in capital gains if you hold onto the house for too long.
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