Selling a house is very seldom a walk in the park. It often becomes a pretty complicated affair, especially when there are additional difficulties, such as the property being inherited. This poses a new set of rules and potential issues, but it’s nothing that can’t be done, don’t worry.
Selling an inherited house can come with certain hurdles you don’t usually encounter during a regular home sale, but it’s not as bad as it might seem. We’re here to explain how you can sell an inherited property and avoid unnecessary problems and stressors.
In this article, we explain some rules when selling your inheritance, how to go about the sale, and we give you some tips for avoiding capital gain tax! So keep reading to find out the best way to sell your inherited house and make the process as smooth as possible.
When Can You Sell Inherited Property
If you’re the administrator or executor of an estate, you’re generally in charge of all its property. This includes real estate, personal items, and any other assets. Once you’ve been given this title, you have the authority to sell any property that’s part of the estate. This process is slightly different if multiple people are involved, but more on that later.
You can only sell the inherited property after probate has been granted. Probate is the legal process of verifying a will and distributing the assets of a deceased person. This can take some time, so it’s not something you can do overnight. Once probate, you’ll have to wait for the property to be transferred into your name. Only then can you sell the property.
The process is slightly different if the inherited property is part of a trust. Selling property in a trust is not the same as selling an inherited property unless you are the trust’s sole beneficiary. If there are other beneficiaries, you need their permission before selling the property.
It’s also important to note that trusts are subject to different rules and regulations. So, selling a property in a trust can be more complicated than selling an inherited property.
Selling Your Inherited Property with Others
If you’re not the only heir to an estate, things can get a bit more complicated. You’ll need the permission of the other heirs before you can sell any property.
This is because all the heirs have a so-called “right of survivorship.” This means they have an equal claim to the property and can do with it as they please. So, if you want to sell your share of the inheritance, you’ll need to get the other heirs to agree. This can often be difficult, especially if many people are involved or it’s hard to get in touch with them.
These are some options if there are multiple heirs:
- One of the heirs can buy out the house from the other beneficiaries.
- You can sell the house and equally divide the assets. This is usually the optimal solution.
This, of course, depends on the heirs’ wishes and plans. During the negotiations with other heirs, it’s best to have a lawyer present. They can help you draft an agreement that will be legally binding and protect your interests.
The Steps for Selling Inherited Property
Now that you know all the ins and outs of selling inherited property, it’s time to get down to business. If all the beneficiaries are on the same page and you’re going through with the sale, here are the steps you’ll need to take:
- Wait for probate to be granted
- Get the property transferred into your name
- Make any necessary repairs or renovations
- Hire a real estate agent
- Market the property
- Show the property to potential buyers
- Negotiate and accept an offer
- Close the sale
Pro tip: When selling an inherited house, we advise you to do it as quickly as possible. We mean that it’s often better to sell the house as-is instead of investing in it and raising its market value.
Tips for Avoiding Capital Gain Tax on Inherited Property
You may have to pay capital gain tax when you sell an inherited property. Capital gain is a tax on the profit you make from selling a property or other asset. It’s important to note that this only applies if the property’s value has increased since it was inherited.
You can deduct the loss from your taxes if the property has decreased in value. However, if the property has increased in value, you’ll have to pay capital gains tax on the profit.
The good news is that there are some ways to avoid or reduce capital gain tax. Here are a few tips.
1. Use the Property as Your Primary Residence
If you use the property as your primary residence, you may be eligible for the capital gains exclusion. To qualify for this exclusion, you must have lived in the house for at least two years before you sell it.
2. Take Advantage of the Step-Up Basis
The step-up basis is a tax rule that allows you to avoid capital gain tax on an inherited property. This rule applies when the property’s value has increased since it was inherited.
Under the step-up basis, the property’s value is reset to its current market value when it’s inherited. So, if you sold the property for more than its market value when it was inherited, you’ll only have to pay capital gains tax on the difference.
For example, let’s say you inherit a house worth $200,000. After making some repairs and renovations, you sell the home for $250,000. Because of the step-up basis, you’ll only have to pay capital gains tax on the $50,000 profit.
3. Invest in a 1031 Exchange
A 1031 exchange allows you to defer paying taxes on the sale of a property by reinvesting the proceeds into another similar property.
To qualify for a 1031 exchange, you must reinvest the proceeds within 180 days of selling the property. You must also use a qualified intermediary to handle the transaction.
Don’t Be Afraid to Hire Help
Remember, this process can be complicated, so it’s always best to seek professional help. A real estate lawyer or real estate agent will be able to guide you through each step and make sure everything is done according to the law. They’ll also be able to help you find the best buyer for your property and get the best price possible.
Selling an inherited property doesn’t have to be a nightmare. With a bit of patience and some professional help, you can get through it with ease.