Inheriting a property from a loved one can be an unexpected, heartwarming gift or a taxing hassle. If you recently inherited a home and fall into the latter category, one of the best ways to avoid the hassle of dealing with the property is to sell it.
But the process of selling an inherited property isn’t always straightforward. Depending on your circumstances, there may be several potential obstacles and even pitfalls you’ll definitely want to avoid. Read on for a brief breakdown of how to go about selling an inherited property.
Determine Your Financial Obligations
When you inherit a home from someone and plan to sell it, the first thing you’ll need to do is determine how the inheritance and sale are going to impact you financially.
First, you may be liable for paying taxes on the inheritance, depending on the circumstances. Second, selling an inherited house for a net profit can trigger something called capital gains tax. Here’s what you should know about the potential tax implications of selling an inherited home:
- The home sale tax exclusion. Unless you plan to live in the house for two years after you inherit it, you won’t be eligible for the home sale tax exclusion. If you live in the home for at least two years after you inherit it, up to $250,000 of the proceeds from the sale of the property will be tax-free when you actually close on the sale.
- Stepped-up tax basis. When you inherit a home and sell it, the amount of capital gains tax you’ll pay is based on the fair market value of the house at the time of the previous owner’s death.
- Estate tax vs. inheritance tax. Estate and inheritance tax aren’t the same thing. Depending on the circumstances surrounding the inheritance, you may be liable for paying one or both in addition to capital gains tax when you sell the place. Tax law can be highly complicated, so it may be in your best interest to consult with an attorney or accountant who can help you determine your financial obligations relating to the inheritance and the sale of the home.
In many cases, the stepped-up tax basis protects the owners of inherited properties from paying a large amount of capital gains tax when they sell. However, your situation may differ depending on your circumstances.
Find Out the Mortgage Status of the Property
Next, you’ll need to find out whether there’s still an active mortgage on the house. The details of an existing mortgage will help you determine how quickly you need to sell. Here’s what you should know:
- Reverse mortgage. If there’s a reverse mortgage on the house, you’ll have a limited amount of time to repay the amount due to the bank. Typically, it’s six months. If you don’t sell the home in that timeframe, you’ll have to pay that balance with your own money.
- Due-on-sale clause. If there’s an active mortgage with a due-on-sale clause, that means the entire remaining balance of the mortgage is due and payable as soon as the previous owner transfers the property to someone else (in this case, you). If you’re a family member of the person, this clause may not apply to you.
- Estate paid off the mortgage. If the mortgage was paid off by the previous owner’s estate, you may own the home free and clear.
- Underwater home. If there’s an active mortgage and the house is worth less than the remaining mortgage balance, the property is underwater. The lender may allow you to conduct a short sale to get rid of the house and close out the loan.
Determine Whether the Home Needs Repairs
Is the house old? Outdated? Is it likely to sell to a traditional buyer in its current condition? If the home needs work and you plan to sell it through traditional realty avenues, you’ll need to handle repairs and renovations before you list the property.
But depending on the extent of the necessary repairs, taking care of the work could involve a substantial time and monetary investment. Depending on your circumstances (and whether time is of the essence because of the mortgage situation) you may not have the time to undertake repairs.
If you don’t have the time, funds, or desire to deal with repairs or renovations on your own, it may be in your best interest to consider selling the property to a cash home buyer. When you sell to a cash buyer (a real estate investor), you’ll avoid paying realtor commissions, as well as the hassle of dealing with showings and negotiations. You’ll get a fair cash offer for the house in as-is condition, which means that even if the place needs a lot of work, you can sell it for fair market value.
If you’re on a serious time crunch to sell the house, a cash home buyer can typically close on the sale in a matter of days. When you’re looking to sell an inherited house fast, working with a buyer of this type may be your best option.
Prepare the Property for Listing
After you’ve handled repairs, it’s time to get the property ready to list. Here’s what you’ll need to do:
- Clean out the previous owner’s belongings.
- Hold an estate sale or yard sale.
- Donate, toss, or store items you can’t get rid of.
- Spruce up the curb appeal.
- Freshen up the interior of the house (you’ll want to consider staging the place too).
- Wait for the estate to go through the probate process.
- Find out if there’s an executor who has a legal obligation to handle the transaction.
After you’ve finished the above steps, all that’s left is listing the house and waiting for a buyer. Keep in mind that most homes sit on the market for an average of 60 days, so prepare to be patient if you’re selling with a realtor or FSBO.
Need to Sell an Inherited House Fast?
If you recently inherited a Colorado Springs property you don’t want, selling it to a cash home buyer may be in your best interest. At We Buy Houses Colorado Springs, we buy all types of residential properties, regardless of their condition or your reason for selling. If you’re ready to find out how much we can offer you for your inherited home, feel free to give us a call today at 719-602-8769 or request a cash offer online, and we’ll be in touch!