If you've inherited a property from a parent or loved one, you know how much of a gift it is. But handling the legalities, paperwork, and maintenance can be a struggle.
Below are a few critical things to consider when selling an inherited property with your sibling(s).
Getting everything ready isn't easy
Once you've decided on selling, it's important to ensure the home is desirable for buyers and legally ready to be sold.
Cleaning up is harder than it looks
Unfortunately, one of the most difficult tasks is the first one to complete: cleaning out the belongings. Packing away and sorting through a deceased loved one's belongings can be an extremely difficult task. No object will ever replace the memories, but you're sure to find a few moments, and you'll soon be able to sort them into piles. One for the things you want to keep, one for the things you want to give away, and one for everything that needs to be thrown away. You can even hold a yard or estate sale for the items you don't want that aren't too damaged.
Sometimes it's best to call in professionals
Then it's on to fixing up the property. Depending on the age of the estate, you might have to do some DIY to get things done. Sometimes, you'll have to get professionals in. For example, plumbing is never an easy DIY project, and it's best to call in your local plumber for most plumbing repair jobs. It might even be a good idea to call in your local estate agent for tips on making the home more marketable and desirable.
There's some paperwork to do before selling
Before you can sell the property, it also needs to go through probate. This involves officially proving and recording the person's passing and that the property belongs to the person(s) mentioned on the will. There's no need to go through this process if your loved one had the Revocable Living Trust. Contact your loved one's probate attorney or estate planner for more information on the specifics of this process in your state.
Financial implications of inheritance
When inheriting a property, you take on the outstanding mortgage and any debts on bills. It's helpful to know how much is owed on both accounts to understand what exactly you'll be making from the sale.
Keep an eye on tax laws
Laws differ from state to state, so it's important to know how the tax will affect your profit on the sale. For example, inherited properties don't qualify for the home sale tax exclusion. This means you would usually get up to $500,000 tax-free on the sale, but you aren't eligible and won't get an exclusion from tax. However, inherited properties can take advantage of the stepped-up tax basis. This means you won't have to pay capital gains tax as long as you sell the home at its fair market value. However, it's set to change in 2022. In addition, if you plan on moving to another state, be sure to check any laws that might be different.
You should also know where and how to report any income from the sale of the estate. Any proceeds from the sale have to be reported to the IRS as taxable income. The taxable amount is calculated based on the market value of the estate and any improvements you've made. You can visit the IRS website for the correct forms and procedures or talk to a tax professional.
It's best to get professionals involved in these decisions to help you analyze your profit and how it will affect you, as there are so many nuanced laws and requirements to consider.
There's a lot of responsibility and stress involved in selling a home. It can be even more overwhelming to sell an inherited home while trying to keep your siblings' opinions in mind. But, having good resources and the right information can give you that peace of mind knowing your loved one's home is in good hands.