The passing of a loved one can take a serious emotional toll on an entire family. Less expected are the economic and legal consequences and how to deal with them. Inheritors can find themselves the owners of new property overnight with no idea what to do about it, or what to expect. Should you keep it? Rent it? Sell it? We’ve assembled a list of some of the most crucial things you need to know about dealing with an inherited property, especially if you choose to sell.
Let’s start with the big picture first. Unless you plan on living in the home you inherit for at least two years, you will not be eligible for a tax exclusion. So what happens then? What if the home you’ve inherited has dramatically appreciated in value? Don’t worry. The tax basis of an inherited property is calculated slightly differently. Normally, proceeds are the purchase price of the home with improvements made to the property by the previous owner added on top of that. If the property is inherited, the tax basis becomes the home’s fair market value at the time of the previous owner’s death. This prevents inheritors from unfairly having to pay increased taxes on homes that have appreciated in value.
Clearing and Staging the Home
One of the first and most emotional practical steps of selling an inherited home is clearing out the previous owners’ possessions. A loved one’s will may detail which cherished heirlooms go to each family member, or may leave it up to the family to decide among themselves what is most important. Once the specified or most important items have been divvied up, you can opt to hold an estate sale in order to clear the rest of the house. An estate sale is much more involved than a garage or yard sale, and many people choose to utilize a professional estate sale agent in order to make sure things run smoothly. During an estate sale, all possessions in the home are clearly organized and tagged, and the public is invited into the home. The prices for items can be fixed, or you can allow haggling and bidding. Some even choose to conduct the sale auction-style.
Once the sale is over, you can donate whatever is leftover to charity or store it–but whatever you do, it’s best to get it all out and start from scratch. If any repairs or remodeling need to be done, having the home empty will make the process that much easier. Once any needed repairs are made, you have a few options. The easiest is to leave the home empty and let potential buyers use their imaginations. However, staging a home to sell can make the home seem more eye-catching and help potential buyers see themselves living there. You can stage the home yourself with rented decor, or reach out to your real estate agent for staging services. Once the home is staged, it’s ready to go on the market.
Be prepared for unseen complications
Dealing with an inherited home, much like selling a home under normal circumstances, has its own unique challenges. The following are possible difficulties to be aware of and prepare for:
• Environmental issues and underwater mortgages– In some situations, you are under no obligation to accept an inherited home and may allow it to go into foreclosure. You may choose to do this if there are flooding or other serious eco-hazards, or if the home is worth less than what is owed on it (an “underwater mortgage”). If you do not wish to accept an inherited home, speak to an attorney and consult your real estate agent as soon as possible about disclaiming it.
• Equal distribution– Most wills specify that the estate must be divided as equally as possible among beneficiaries. This refers not to the number of possessions but to the value of the estate as a whole. This can complicate matters, as heirlooms and sentimental items have subjective rather than objective value that no appraiser can determine. If beneficiaries cannot agree upon the value of particular items or who should receive them, an auction among beneficiaries is a fair compromise. Value of real estate, however, is easier to determine and can be left up to a professional appraiser. Dividing real estate is most easily done by selling the property and divvying up the proceeds in equal shares.
• Repairs– Not everyone can foresee when they will inherit a property, but if you know you stand to inherit a home and may do so soon, it’s good to have some funds socked away for repairs or other improvements that need to be made to the home. After you inherit, have an inspection done and regardless of the outward condition of the home, be prepared to make improvements.
Remember: we’re always here for you whenever you need us. For questions or concerns about dealing with an inherited property, contact a Showcase agent. We’re dedicated to helping you every step of the way!