How to Sell Inherited Property
When a loved one passes, there is an overwhelming number of things that must be dealt with. The funeral itself is a huge undertaking, and after the initial loss, all of the belongings, finances, and assets owned by your loved one will need to be dealt with. Often, one of the assets is a home. If you’re in need of a home, then it’s a blessing. If not, you may be thinking about selling it. Here are a few things to keep in mind when selling an inherited property.
Before You Can Sell
Before you can sell an inherited property, the home will go through the probate process in the courts. This is the legal phase where disputes are settled and estates are legally inherited. The legal part has to complete before the property is technically yours to sell. There are exceptions where probate is skipped, but in general, you can assume that probate will be part of the larger process.
Probate will go through any existing will. It will also follow the standard procedures outlined in inheritance law. Ultimately, an executor will be appointed to carry out the last wishes. When probate is finished, the property will be legally owned by the successor(s).
Sometimes, a property will go to a single new owner. Plenty of other times, the ownership is split. Whichever is the final verdict, ownership has to be settled before a property can be sold. If you are the sole new owner, you can move on to the next step. If not, you’ll need consent from all of the owners to go through a sale. This is not a majority-rules kind of scenario. Every partial owner has the right to decline a sale.
Sometimes, it’s necessary to negotiate with other owners in order to get to the next stage. Professional mediators exist to help with such negotiations.
Selling the Property
At this point, all parties have agreed to sell. You can move forward.
In many ways, this will be like any other home sale. You prep the property, list it, find a buyer, and go through the whole routine. Finally, you get to close and cash out on the property. That’s the standard home-sale process, but for an inheritance, there’s another excellent option.
You can sell to a property investor instead of going through a realtor. This will expedite and simplify the process. Typically, an investor will offer less money than a traditional buyer, but you can skip realtor fees and a lot of hassle. They won’t ask you to do any repairs and they don’t care what condition it’s in. When all is said and done, the convenience is often worth it, especially if the property needs a lot of work to get into selling condition.
Taxes on inheritance sales can get pretty complicated, but let’s break down the fundamentals. The first thing to consider is inheritance tax. This is a federal tax, and the vast majority of properties are well under the exemption limit (which is over $11 million). Assuming you are under that limit, you still have to consider property taxes and income taxes when the estate is sold. These are state taxes, and there is a lot of variance among the laws. Here are the essentials of how it works in California.
Your cut of the property sale is based on the home’s value when the previous owner passed. Let’s look at an example where the house was worth $300,000. If you are the sole inheritor, you inherited $300,000 (in the form of a house). If you split that house with two other people, you inherited $100,000. These totals are well below the inheritance tax exemption, so you don’t owe anything in inheritance taxes.
Now you sell the house. When you do, you will only be taxed on money you make above the initial value. So, if you sold the house for $350,000 as the sole owner, you would only be taxed on $50,000. The other $300,000 was covered and exempted by inheritance tax.
If you were in a group of three owners, your profit would only be $16,667, and thus your taxes would be calculated on this much smaller number. These are the numbers you need in mind when you look into taxation.
Demystifying Property Sales
You can see how things get confusing. If you want to simplify everything, you can work with a professional who knows the industry inside and out. Frank Buys Houses is a real estate investment group that can help you understand your inheritance and options. Fill out our contact form online or call us at 209-395-1355.