While inheriting a home from a family member or friend is a wonderful gift, it doesn’t come without a few challenges. The inheritor can choose to live there or use it as a source of rental income, but tax implications and legal considerations can come up during the tricky selling process. However, a simple and lucrative selling process is within reach with the help of specific steps and expert advice—all that will be left is preparing your home for a quick sale!
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1. Prepare for the Probate Process
Those who don’t already own a home or don’t want to move will frequently find that selling an inherited home is the most appealing option. In most cases (even with a will in place), the inherited home and its contents must go through the probate process that validates the will before an ownership transfer can be completed. Generally, this can take nine months up to two years to be finalized, which allows you to move in, rent, or sell the house.
2. Pay Off Any Existing Mortgage Balance
Many inheritors simply can’t or don’t want to pay a mortgage after inheriting a home. This is a primary reason that selling fast is on the agenda, so the mortgage is paid off, and the inheritor can reap the rewards of any existing cash equity. One of the fastest ways to sell is to bypass traditional methods and opt for a cash buyer who’ll buy it as-is and give you moving options after probate. The agreed-upon selling price can also be applied to any existing mortgage.
3. Understand Capital Gains & Inheritance Taxes
A seller only needs to think about capital gains tax on an inherited property when they sell it, but understanding taxes on gifts and inheritances is vital whether selling the home imminently or not. Typically, these homes are only subject to short-term capital gains if sold before a year of ownership; if this is the case, they can be taxed at rates of up to 20%, depending on the seller’s tax bracket. If owned over a year, there may be long-term capital gains, which tend to be less than short-term capital gains tax.
Most individuals who inherit a house won’t be required to pay capital gains taxes. Also called inheritance taxes, only a handful of states have inheritance laws, including:
- New Jersey
The good news is that most of these states consider the deceased’s children and spouse exempt from this tax on any assets willed to them.
4. Be Aware of Possible Federal Estate Taxes
While there’s no federal inheritance tax, federal estate taxes are mandated for some sellers. With a federal estate tax threshold of $12.92 million, only high-value properties and inherited assets exceeding this amount are required to pay this tax. Depending on the state in which the home is located and its value, estate tax rates range from 18% to 40%.
5. Decide How to Sell An Inherited Home
Anyone dedicated to selling an inherited home needs to be aware of the associated costs with ownership, repair expenses, and potential tax repercussions to help determine their best options to sell it before proceeding. There are three primary ways to trade: list with an agent, do a for sale by owner (FSBO), or talk to cash buyers.
Deciding which of these to choose will depend on the inheritor’s priorities. If time isn’t a factor, selling FSBO or with an agent are viable options—just be sure to follow your for-sale-by-owner checklist closely. Those seeking a fast and simple sale should look into home cash buyers. Any of these options can allow one to take advantage of a hot market and find buyers willing to pay a good price.
Listing With an Agent
A listing agent may be a good way to go if the home is particularly expensive or in a highly sought-after area, as these properties can involve large sums of money. They usually market to buyers through networks like the MLS and can offer guidance concerning any offers received. However, paying an agent or broker to handle marketing, photos of the home, and legal documents will cut into the bottom-line profits.
For Sale By Owner Transactions
Owners who decide to sell an inherited property themselves will save money by skipping the fees of a listing agent. This means that the selling party will need to handle all the marketing details and closing procedures. In essence, there may be savings on the initial costs, but the home may take longer to sell, and there may be costs associated with making repairs to add to the appeal of potential buyers.
Sell Fast to Cash Buyers
Some companies and local real estate investors will buy houses for cash. Inheritance is one of the most common times to sell a home as-is, as adding the financial commitment of a second home is a deal-breaker for most people. Sellers who want to make a fast sale and still get a fair price for their property should strongly consider selling to a cash buyer. Finding a cash home buyer is perfect for distressed inherited properties that new owners would rather not pay for and spend time on potentially costly repairs.
Most cash buyers operate the process similarly and have comparable contract terms. A cash buyer deal is likely less stressful for the seller, and it could be possible to net more than with traditional selling approaches. Some benefits of selling your house for cash include:
- There’s no need for staging the home.
- Cleaning before moving or selling is optional.
- No showings or open houses to deal with.
- There is no risk of a buyer’s financing falling through.
- The closing process typically is much faster than other options.
- There may be some contingencies avoided.
- There is typically no professional appraisal performed.
Ready to Sell An Inherited Home?
If you’re getting ready to sell an inherited home, there are a few things to consider first, and this brief guide should help inform your final decision. Inherited homeowners with flexible timelines can feel comfortable with any of these options. However, if expediency and simplicity are paramount, going with a cash buyer might be the ideal solution.
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