Friday, September 20, 2024 / by Teresa Pileggi
What You Need To Know Before Selling An Inherited House
What You Need To Know Before Selling An Inherited House
Inheriting a home is among the easiest ways to own a property. However, the transition comes with numerous challenges, including inheriting mortgages, property taxes, and home maintenance costs. To avoid such unplanned expenses and conflicts with other heirs; you can decide to rent out the property or sell it and share the profit.
Selling an inherited property is more of a legal process than a typical real estate transaction. Besides prepping the home, you must understand the ownership process and tax implications accompanying inherited homes. Therefore, before offloading that inherited property, here is what to what to expect in the process.
What to Consider Before Selling an Inherited House
Unlike a traditional and straightforward sale, selling an inherited house requires five significant considerations.
These include:
1. How You Own the Property
How you inherit the property determines how straightforward the selling process can be. For instance, if the previous owner bequeathed the house to you alone or you co-owned the property with them before they died, you can sell it any time you want. You can skip the lengthy probate and other legal. The sale becomes complicated if you co-own the property with other family members listed in the decedent's will. You must consult other joint owners and consider their views before selling the home. It even becomes challenging if any co-owner has an emotional attachment to the property and is not ready to let it go.
In this case, you can proceed with the sale only after:
? Having a detailed discussion with other co-owners to eliminate any feelings that can hinder the sale.
? Consulting an attorney who can help you handle and define the key responsibilities of each co-owner.
? Buying out other heirs to remain the sole owner of the home. However, this is only possible if other beneficiaries can take their shares based on the current market value.
2. The Probate Process
Probate is a legal or court-supervised process that involves reviewing the decedent's real estate to pay creditors and transferring the remaining assets to beneficiaries according to the will or provincial law. The process differs among provinces but involves an executor who ensures everything goes according to the decedent's wish. The executor can be a family member or neutral lawyer who manages the assets before transferring them to the heirs. Depending on debts, family issues, and provincial legal requirements, the probate process can take several months. Hence, during the process, you should:
? Avoid renovations and upgrades, which can impact asset value and legal transfers.
? Check if the house is in a trust or if your state allows you to inherit it directly through a transfer-on-death deed.
? Understand all the costs involved in the process, including court, executor, and property appraiser fees.
3. An Existing Mortgage
An existing mortgage can be part of debts to pay during probate. That means you can pay it off immediately after agreeing with the lender or selling the house.
However, if you do not have enough cash or the lender cannot wait until you sell the home, you can consider the following options:
? Assuming the loan: You can meet the lender and define a proper plan that allows you to take over the mortgage and continue with monthly payments. Once you agree to settle the loan, you can list the home or wait until you have cleared the mortgage.
? A short sale: You can agree with the lender to sell the home for less than the remaining mortgage. The lender will then forgive the remaining balance, and you can walk away debt-free.
Deed in lieu of foreclosure:
? Deed in lieu of foreclosure is the last option after exhausting all the possible ways of repaying the home loan. With this option, you agree to willingly transfer the homeownership to the lender to prevent foreclosure. The process also releases you from the mortgage debt, although you should only consider it if you do not have any cash source or do not want to be linked to the property anymore.
4. Capital Gains Tax Implications
Capital gains tax is the tax you pay after selling a home for a profit. The amount can be higher in a typical sale where you are the property's primary owner. However, when dealing with an inherited home, the capital gains tax you pay depends on the following factors.
? The property's fair market value (FMV)
Fair market value (FMV) is the stepped-up value of the home on the date of the decedent's death. To know the home's FMV, you will need a date of death appraisal, which gives the home's value when the previous owner passed away. You can subtract the value from your selling price to determine your taxable profit.
? Principal residence exemption
Principal residence exemption, or home sale exclusion, is the tax benefit you get as a Canadian homeowner when selling your primary home. The exemption allows you to reduce or eliminate capital gains tax when selling an inherited house. However, you must prove that the house is your primary residence to the Canada Revenue Agency (CRA), which includes demonstrating that you have lived there for some time in a year.
To claim principal residence exemption, you have to report the sale of the house on your income tax return. The steps include gathering all relevant documents, such as purchase and sale agreements, identification copies, records of your bill payments, and Form T2091. You must also complete Schedule 3, which reports your capital gains or losses on the property sale.
5. The Property's Condition
Once you have closed the probate process and understood the tax and mortgage implications, the last step is to prepare the home before listing it. The step begins with evaluating the home based on its condition, location, and market value. The real estate rule of thumb is that you cannot change the house's location but can change its condition to maximize its resale value.
Therefore, before listing an inherited house, invest in the following tips.
? Conduct a pre-listing home inspection to identify any problems that might affect its sale. Use the inspection report to undertake significant repairs and upgrades.
? You can sell the house as-is, especially if you have limited time or you do not have enough cash to cater for the repair costs.
? Look for companies that buy houses in any condition. Enlist the services of a real estate agent who can connect you to companies that purchase upper-fixers at the best prices.
The Bottom Line
Selling an inherited house can be demanding, especially if it involves many joint owners, huge mortgage balances, or debts. However, you can easily overcome the challenges with a clear roadmap and experience a profitable and hassle-free sale. All you need is to understand the costs and steps involved before listing the house and how to prepare the home for a quicker sale. To streamline the process, you must also work with a reputable real estate agent who understands how inherited properties work.
Inheriting a home is among the easiest ways to own a property. However, the transition comes with numerous challenges, including inheriting mortgages, property taxes, and home maintenance costs. To avoid such unplanned expenses and conflicts with other heirs; you can decide to rent out the property or sell it and share the profit.
Selling an inherited property is more of a legal process than a typical real estate transaction. Besides prepping the home, you must understand the ownership process and tax implications accompanying inherited homes. Therefore, before offloading that inherited property, here is what to what to expect in the process.
What to Consider Before Selling an Inherited House
Unlike a traditional and straightforward sale, selling an inherited house requires five significant considerations.
These include:
1. How You Own the Property
How you inherit the property determines how straightforward the selling process can be. For instance, if the previous owner bequeathed the house to you alone or you co-owned the property with them before they died, you can sell it any time you want. You can skip the lengthy probate and other legal. The sale becomes complicated if you co-own the property with other family members listed in the decedent's will. You must consult other joint owners and consider their views before selling the home. It even becomes challenging if any co-owner has an emotional attachment to the property and is not ready to let it go.
In this case, you can proceed with the sale only after:
? Having a detailed discussion with other co-owners to eliminate any feelings that can hinder the sale.
? Consulting an attorney who can help you handle and define the key responsibilities of each co-owner.
? Buying out other heirs to remain the sole owner of the home. However, this is only possible if other beneficiaries can take their shares based on the current market value.
2. The Probate Process
Probate is a legal or court-supervised process that involves reviewing the decedent's real estate to pay creditors and transferring the remaining assets to beneficiaries according to the will or provincial law. The process differs among provinces but involves an executor who ensures everything goes according to the decedent's wish. The executor can be a family member or neutral lawyer who manages the assets before transferring them to the heirs. Depending on debts, family issues, and provincial legal requirements, the probate process can take several months. Hence, during the process, you should:
? Avoid renovations and upgrades, which can impact asset value and legal transfers.
? Check if the house is in a trust or if your state allows you to inherit it directly through a transfer-on-death deed.
? Understand all the costs involved in the process, including court, executor, and property appraiser fees.
3. An Existing Mortgage
An existing mortgage can be part of debts to pay during probate. That means you can pay it off immediately after agreeing with the lender or selling the house.
However, if you do not have enough cash or the lender cannot wait until you sell the home, you can consider the following options:
? Assuming the loan: You can meet the lender and define a proper plan that allows you to take over the mortgage and continue with monthly payments. Once you agree to settle the loan, you can list the home or wait until you have cleared the mortgage.
? A short sale: You can agree with the lender to sell the home for less than the remaining mortgage. The lender will then forgive the remaining balance, and you can walk away debt-free.
Deed in lieu of foreclosure:
? Deed in lieu of foreclosure is the last option after exhausting all the possible ways of repaying the home loan. With this option, you agree to willingly transfer the homeownership to the lender to prevent foreclosure. The process also releases you from the mortgage debt, although you should only consider it if you do not have any cash source or do not want to be linked to the property anymore.
4. Capital Gains Tax Implications
Capital gains tax is the tax you pay after selling a home for a profit. The amount can be higher in a typical sale where you are the property's primary owner. However, when dealing with an inherited home, the capital gains tax you pay depends on the following factors.
? The property's fair market value (FMV)
Fair market value (FMV) is the stepped-up value of the home on the date of the decedent's death. To know the home's FMV, you will need a date of death appraisal, which gives the home's value when the previous owner passed away. You can subtract the value from your selling price to determine your taxable profit.
? Principal residence exemption
Principal residence exemption, or home sale exclusion, is the tax benefit you get as a Canadian homeowner when selling your primary home. The exemption allows you to reduce or eliminate capital gains tax when selling an inherited house. However, you must prove that the house is your primary residence to the Canada Revenue Agency (CRA), which includes demonstrating that you have lived there for some time in a year.
To claim principal residence exemption, you have to report the sale of the house on your income tax return. The steps include gathering all relevant documents, such as purchase and sale agreements, identification copies, records of your bill payments, and Form T2091. You must also complete Schedule 3, which reports your capital gains or losses on the property sale.
5. The Property's Condition
Once you have closed the probate process and understood the tax and mortgage implications, the last step is to prepare the home before listing it. The step begins with evaluating the home based on its condition, location, and market value. The real estate rule of thumb is that you cannot change the house's location but can change its condition to maximize its resale value.
Therefore, before listing an inherited house, invest in the following tips.
? Conduct a pre-listing home inspection to identify any problems that might affect its sale. Use the inspection report to undertake significant repairs and upgrades.
? You can sell the house as-is, especially if you have limited time or you do not have enough cash to cater for the repair costs.
? Look for companies that buy houses in any condition. Enlist the services of a real estate agent who can connect you to companies that purchase upper-fixers at the best prices.
The Bottom Line
Selling an inherited house can be demanding, especially if it involves many joint owners, huge mortgage balances, or debts. However, you can easily overcome the challenges with a clear roadmap and experience a profitable and hassle-free sale. All you need is to understand the costs and steps involved before listing the house and how to prepare the home for a quicker sale. To streamline the process, you must also work with a reputable real estate agent who understands how inherited properties work.
