When you are inheriting a property, you may find yourself asking, what now? There are several ways you can go about this. You can always sell the property, rent it, live in it, or keep it for the future. It’s not always so easy, — in some situations, you won’t be the only heir. Sometimes you’ll have to make joint decisions with other owners.
It’s not only a matter of the best economic decision; a lot of grief and emotions come with inheritance. They can have a considerable influence on one’s judgment. All of this can be pretty hard and intimidating. Hopefully, this guide will clear out some problems you will have to face.
Taxes and Other Payments
Once you inherit a house, you may wonder if you should pay some taxes right now, how they are calculated and if you have enough money to support it. There are few situations to consider.
Today, only six states charge inheritance taxes, so it’s best to consult this with your financial advisor. They vary depending on the kinship degree of the heir and go up to 40%.
When you inherit a house with a mortgage, the responsibility of paying it off is now on your shoulders, but if the property was covered under life insurance, the mortgage will be covered. Otherwise, it’s smart to get advice from a professional.
You can also face something called a reverse mortgage, which is granted to seniors over 62 years old. In this case, after a person’s death, the house will be transferred to the mortgage company.
Capital Gain Taxes
Capital gain taxes are a special type of taxes related to a profit gained from a property. If you want to sell it, the first thing that needs to be done is the evaluation of the Fair Market Value. If your family member bought the property years ago for 50,000$, now it may be worth 500,000$. In this case, your new tax basis is today’s value. However, you have to pay this tax only if you make a profit. If you sell it for half a million dollars, you won’t need to pay anything, but if you sell it for 550 000$, you need to pay a tax on that profit.
In case you want to keep the house, you may be excluded from paying this tax. If you already have a house, you will need to nominate one of the homes as your main residence. You can only be relieved for your main home. If not, you may qualify to exclude gains up to 250,000$ if you have been using this house as the primary residence for at least two years or haven’t used the exclusion on another place in the last two years.
Inheriting a house alongside other people complicates things. All of you will have to agree on the best course of action.
One of the stakeholders may choose to buy the whole house in cash or by financing part of the home’s value.
If one of the stakeholders wants to sell and the other one disagrees, it is common to write a promissory note that outlines how you pay the other part of the property’s value.
Sell and Split
You and your family can simply sell the house and split the profits for equal parts.
Rent and Split
Renting is a good investment and a reliable source of steady income. You can split the profits and decide on the property’s future later.
Suit for Partition
If you can’t agree on any option, the only thing you have left is to go to court. It is essentially about asking the judge for permission to sell the house. Remember that legal fees will lower your profits.
If you become the only heir, you have to register the house in your name at the Land Registry. It’s not obligatory, but it will be the best proof of ownership. It may also be helpful to update the homeowner’s insurance policy. After this, you may track down all utility accounts and make sure that everything is paid off.
It doesn’t matter if you decide to sell or move in; it’s best to check if everything is working correctly. You can employ someone to do a thorough inspection or do it by yourself.
The Bottom Line
Inheriting a house can be a substantial financial boom, but it may also cause many problems. There is much to consider, and sometimes you’re not the sole decision-maker. You have to deal with other people and their feelings. Sometimes it is hard to remember that they are going through the same troubles as you. Grief and emotions may be a big gamechanger, so try to stay calm and full of empathy no matter what happens. It will help you avoid family feuds, which may take years to sort out properly.