Inheriting a house launches a fairly complex process and an emotionally charged one at that. Often, you’ll learn about the inherited property not long after the death of a loved one, which can make a financially complicated situation surprisingly difficult to navigate.
In most cases, it’s best to look at the situation as logically as possible. You want to explore all of the options you have available for the inherited house, ensuring you can make the best choice for yourself.
If you’re wondering what happens when you inherit a house so that you’re prepared for the future or are currently inheriting a house and aren’t sure how to proceed, here’s what you need to know.
What to Do When You Inherit a House
When you initially inherit a house, there are a few things you need to do right away. You’ll want to establish a homeowners insurance policy to safeguard the property. Additionally, you’ll need to transfer any required utilities into your name or cancel unneeded services.
It’s also wise to create a basic housekeeping and general maintenance plan. This can include dealing with the personal property still in the home, as well as steps to keep the house in good repair and overall condition.
Beyond that, you’ll want to figure out what comes next. Typically, you should begin by considering these three things:
- The financial, legal, and debt-related obligations that come with the inherited home
- The tax liabilities that come with inheriting a property, including inheritance, estate, and capital gains taxes at the federal and state levels
- What you’d like to do with the house, such as moving into it, renting it out, or selling it.
By exploring those three areas, you can figure out what you’ll need to do to navigate the situation. Your decision about what to do has implications, so you want to ensure you’re ready for what’s involved before settling on a particular course of action.
If you aren’t sure precisely what you need to consider in those areas, here is a look at each one.
Inheriting a House: Mortgage Considerations
The presence or lack of a mortgage on the home impacts the financial and legal aspects of inheriting a house. Here’s an overview of each scenario.
What Happens If You Inherit a House with a Mortgage?
If you inherit property with a mortgage, the first thing you need to do is review the terms of the agreement. In some cases, the mortgage may impact your options, so it’s wise to take a close look.
At times, the heir can directly take over the existing mortgage. The terms remain the same, and the new owner just has to make the required payment and meet any other conditions, like maintaining the homeowner’s insurance.
In others, the heir may be able to move forward with a fairly traditional refinance. This would allow them to pay off the existing mortgage with funds from a new one, establishing new terms along the way.
If the mortgage is for more than what the property is worth and the heir can’t afford the existing payments, they may have little choice but to sell. Additionally, they might have to arrange approval with the current lender for a short sale, allowing the house to be sold for less than what’s owed.
Some mortgages have a due-on-sale clause. With these, the heir may be required to pay off the mortgage in full – either with cash or by refinancing – or move to sell the property right away. In some cases, these kinds of clauses only apply to non-family members of the deceased that inherit a property, but some apply more broadly, so it’s best to scrutinize the issue.
What Happens If You Inherited a House with No Mortgage?
If you inherited a house with no mortgage, the process is substantially simpler. You don’t have to navigate arrangements with any lender. Instead, you’ll simply need to update the deed to reflect the change in ownership.
However, it’s wise to ensure that there aren’t any other liens on the property, particularly tax liens for past-due property taxes. A lien is associated with the home, not the previous owner. As a result, you’ll want to pay it to avoid any potential ramifications from unpaid tax debts.
Tax Considerations for Inherited Property
When you inherit a house, there are several tax implications, both at the federal and state level. You may need to navigate estate or inheritance taxes. At times, you may be subject to capital gains taxes, particularly if you sell the property.
What does and doesn’t apply depends on several factors, including:
- The state in which you live
- The value of the inherited property
- What you choose to do with the home
Inheritance and Estate Taxes
At the federal level, there are no inheritance taxes. Instead, the estate taxes are what you’ll need to navigate.
However, only higher value estates are usually subject to federal estate taxes. You’ll typically only encounter them if the estate’s value exceeds $11.7 million, so there is a reasonable chance they won’t be a concern.
On the state level, tax requirements vary. Some states have inheritance taxes, while others have estate taxes. As a result, what you’ll need to do depends on where you live.
For New Yorkers, state inheritance taxes aren’t an issue, as New York doesn’t have one. Instead, New York has an estate tax. However, if the death occurred in 2021, you usually only have to worry about those if the estate – as a whole – was valued above $5.93 million.
Capital Gains Taxes
If you decide to sell the property, you may be subject to capital gains taxes at the federal and state level, too. Capital gains taxes occur when you have a profit from the sale of an asset. However, it takes the value of the inherited property at the time of the inheritance into account.
If you sell at or below the current fair market value at the time you inherited the home, there isn’t any capital gain. As a result, you won’t be taxed on the earnings from the sale. If it sells above the fair market value, you owe capital gains taxes on the difference between the sale price and the fair market value, as that amount reflects the profit you’ve earned.
You aren’t necessarily subject to federal capital gains taxes on the profit indefinitely. If you choose to keep the home and use it as a primary residence for at least two years during the five years before the sale, you can potentially exclude up to $250,000 if you’re single or filing separately, or up to $500,000 if you’re married and file a joint return.
There can also be state or city-level capital gains taxes. Precisely how much those may be can depend on how long you hold the property and where you live, and the home’s location.
Deciding Whether to Keep, Rent, or Sell the Inherited House
Once you inherit a property, you typically have three choices about what to do next. You can either keep the house and move into it, keep the home and rent it out, or sell the inherited house.
For some heirs, moving into the home will be the ideal choice. Sometimes, it’s mainly for nostalgia reasons, as it allows you to keep making memories on the property. However, it can also be a practical choice if you want to live in the area, the home is in good condition, and it can meet your needs.
Renting out the property creates opportunities for long-term income. Additionally, there can be tax advantages. The main trade-off is that you’ll either need to serve as a landlord or hire a company to manage the property, both of which come with various obligations and costs.
Selling is often a way to secure an influx of money, suggesting that the property is worth more than what’s left on the mortgage (if there is one). The property’s current condition could play a role, however. If it needs significant repairs or is considered undesirable, selling may take an investment or a substantial amount of time. If that isn’t the case, selling could be fairly seamless.
In some cases, selling can be surprisingly simple, especially if a family member has expressed interest. Additionally, selling inherited property to a family member can give some people a sense of comfort, as the house will be enjoyed by someone they know and trust.
Dealing with a Shared Inherited Property
In some cases, multiple people are listed as heirs on a property. If that happens, then you have to navigate a few extra complexities.
Usually, the biggest challenge is coming up with a course of action all involved parties find agreeable. If everyone wants to sell, a quick conversation may be all that’s necessary to get on the same page.
Similarly, if only one heir wants to keep the home and the others want to sell, they can arrange for a buyout. With this, the heir that wishes to own the house pays the others for their shares, transitioning full ownership while providing the others with cash. It’s one of the easier options for selling inherited property to a sibling when the others prefer not to keep the property.
However, if one or more heirs would like to keep – and particularly move into – the home, figuring out what to do could be incredibly difficult.
If there is a disagreement, all parties may want to consult with a family attorney. They can oversee the discussions, create formal written agreements, and otherwise ensure everyone’s interests are properly addressed.
It is important to note that shared ownership is a potential option. However, that may not meet the needs of all parties, particularly if they don’t see an equal level of benefit from the arrangement.
Can Siblings Force the Sale of Inherited Property?
In short, yes, siblings can force the sale of the inherited property if they are joint-heirs. It requires a partition action, which is a type of legal filing.
A partition action is a request to have the court mandate the sale of the property. Once the court takes up the partition, they can make certain determinations, including:
- Having one heir buyout the others
- Physically dividing the property equitably (typically an option if the property is a large piece of land)
- Forcing the sale and determining how any profits will be split
Once a decision is rendered, it’s usually final. However, one of the involved parties could file an appeal, suggesting there are reasonable grounds.
How to Change a Deed When You Inherit Property
In most cases, updating the deed on inherited property is straightforward. First, you’ll need some documentation, including a copy of the will, proof the will has gone through probate, and a death certificate copy.
Second, you’ll need to draft up a new deed that reflects the new owners. This may be a single person or, if there are multiple heirs, a group. Usually, it’s best to work with an attorney to get the document drafted, ensuring it meets the needs of your state.
Once the new deed is ready, it’ll need to be signed and notarized. In most cases, you can take it to your financial institution, as many banks and credit unions have notary publics available to their customers.
Finally, send in all of the documentation to the county so that it can be recorded. Often, it’s best to do this in person. Not only can you ensure the documents arrive safely, but you can also pay the required fee without having to mail a check with the paperwork.
Can You Turn Down an Inherited House?
Yes, you can turn down an inherited property. If you immediately know that you don’t want it, you can “disclaim” it. With that, you never assume any ownership responsibility, tax obligations, or anything else.
However, you also have no say in what happens to the house next. It may go to a contingent beneficiary if one is in place. Otherwise, its future may be determined during probate.
It’s important to note that you do have to formally refuse the inheritance. Usually, this involves a written disclaimer that has to be signed and notarized, and officially filed with the probate court.
How to Sell an Inherited House in New York
If you are inheriting a home and want to sell your probate property, Global Property Systems (GPS) can help. Here’s how.
OPTION 1: Sell for Market Price
You can elect to get the house into tip-top condition and have it listed on the market. With this, the home is promoted in all the ways you would expect with a traditional real estate transaction. This includes, but is not limited to, listing on an MLS®, multiple online advertising sites, signage, and open houses.
The approach may take more time. However, this will definitely bring you the most exposure and the most opportunity for profit.
OPTION 2: Quick Sale, As-Is
If your situation calls for a quick sale, GPS can bring you a cash offer in a matter of days. We work with several dozen investors in New York, allowing us to facilitate a sale quickly.
With investors, you’re usually dealing with cash buyers that will purchase your property as-is, typically for less than the market price. The benefit of going this route is a much quicker sale. Plus, you usually won’t have to worry about minor repairs (like fixing a window or door) or investing more into the property to prepare it for sale.
Get the Process Started with GPS
The GPS Probate Team understands what you are going through, and we want to lift at least one burden off of you at this challenging time. You need an agent familiar with the probate real estate process — someone who can synchronize all the components of a home sale while also ensuring that you get top dollar for your property.
Get in touch with us today so we can:
- Coordinate a stress-free, organized transaction
- Get you the best possible price for your probate property
- Give you peace of mind
There are many things to consider when dealing with probate property, and GPS wants you to know that we will handle it all. You can focus on your memories and move on with your life without the frustration and distraction of a major real estate undertaking. We will handle the transaction from start to finish in a professional manner, giving you the freedom to move forward, knowing you have honored your loved one’s wishes.