Watch this video to understand your options when you inherit your parents’ house so that you can be better prepared should the time come that you find yourself with a new home on your hands.
Though there is some speculation amongst experts as to how much people can expect to inherit from their parents in the coming years, there is no denying that a chance exists you’ll inherit your parents’ house when they pass.
And, while you may not receive a check for the expected average inheritance of $69,000, $177,000, or even $285,000 (depending on you who you ask), it’s important you take a home inheritance seriously.
In fact, there are three major options to consider when you find out that you have been given the keys to your parents’ house after they are gone.
Figuring out what to do when you’ve inherited your parents’ house poses many financial and emotional challenges – especially if you are not sure how to handle the responsibilities that come with a property inheritance.
If you have no interest in keeping your inherited property, whether to live in it or rent it out, your best bet is to sell your inherited house.
This is especially true if you have siblings and there is no legal documentation of what to do with the property.
Rather than fight it out with your siblings during a time of grieving, make plans to sell the property and split the profits evenly.
That said, Mitchell Kraus, a certified financial planner and partner with Capital Intelligence Associates in Santa Monica, California, recommends waiting to sell if you can afford to do so.
This is because inheriting a home during an emotional time can lead to irrational or hasty decisions, whereas waiting a few months for things to settle offers room for more rational ideas of what to do with the home. After all, if you sell right away, there is no taking it back.
If you do decide to sell your parents’ house, however, keep in mind the following:
Whether you sell the property right away, or wait a few years to do so, the IRS will treat your inheritance as though you’ve inherited stock, meaning you will receive tax benefits from it.
For example, the value of the home will be based on the market value of the property at the time of your parents’ death, not the original purchase price. This is called the stepped-up value, and it affords those inheriting property the luxury of not having to pay capital gains taxes up to a certain percentage. And, depending on how much annual income you make and which tax bracket you fall into, you may enjoy rates as high as 20% on those gains.
That does not necessarily mean, however, that you are free from paying any taxes.
If the capital gains exceed the percentage category you fall into based on your income, you’ll owe. On top of that, some states levy additional taxes on property valued over a certain amount (e.g. $1 million), and some states even go so far as to charge inheritance taxes on those selling inherited property.
Just because you decide to sell the home, and possibly make a profit, does not mean you are free and clear from owing money.
For instance, you’ll want to make sure all homeowners insurance is paid up to date before you sell, just in case something happens to the property between the time you inherit it and the time you sell it.
In addition, you’ll want to make sure all mortgage payments, property taxes, and utility bills are paid as well so that you don’t run into any issues with bill collectors and find yourself unable to sell.
Lastly, once the property does sell, keep in mind that if you don’t make a profit, you’ll owe the remaining mortgage balance, along with any realtor commissions, taxes, and closing costs associated with the sale.
If you do not want the property, selling your inherited home is always a good option. Just make sure to weigh the pros and cons, and prepare yourself financially for any surprises.
There is also the option of living in the property your parents have left to you.
If this is the case, and you have siblings, make sure your parents’ wishes to have you move into the home (not your siblings) are in writing and clearly outlined, to avoid lengthy court disputes.
If you are thinking about moving into the property you’ve inherited from your parents, consider the following:
As you can see, while there are some downsides to moving into your parents’ home, so long as you balance the finances and know what you’re getting into, it can end up being a good option.
The last option you have when you’ve inherited your parents’ house is to rent it out.
This eliminates the need to sell right away, and prevents you from having to move in as well. But it also lets you keep the property that you may have grown up in, that has value, or that you’re just not quite sure what to do with.
Renting an inherited property is good for generating some monthly income, which is especially helpful if there is still a mortgage that needs to be paid each month.
However, there are always challenges that come with becoming an instant landlord. For instance, there is the upkeep and maintenance of the property, rent collecting procedures, tenant screening and placement, lease drafting, and so much more.
You may not have the spare time on your hands to handle everything that comes with being a landlord. And, while there is always the option of enlisting the help of a property management company, that does not come without a cost as well.
Worse yet, you may feel your inexperience in the real estate world will prevent you from becoming a successful property owner.
If you have recently inherited a home or are helping your parents sell their home that needs a lot of work, selling it as-is can be very beneficial.
With the help of Homestead Road you get everything you need to handle the property and receive expert guidance throughout the entire process.
Contact Homestead Road today to learn more about your options.