Inheritance is a delicate thing. The process can be frustrating at times, emotionally draining at others, and the government gets involved far too often than most people like to admit. Unfortunately, it\u2019s just a part of life and the only way out is to press on and push through.<\/p>\n
Whether you\u2019re inheriting a project house<\/a>, a pretty penny or just a lot of paperwork, you have some major questions to answer and some big decisions to make.<\/p>\n We\u2019re here to help.<\/p>\n Here are some straight-forward answers to 4 pressing questions regarding the inherited property.<\/p>\n If there\u2019s no will, this process gets complicated fast and there are many state-specific laws you must abide by. Your best bet is to get an attorney involved from the beginning.<\/p>\n If there is a will, the deceased person probably indicated to whom they wanted their home to go. It might be just one person called the principal beneficiary \u2014 or it could be multiple people, like a parent who leaves their home to their three children called tenants in common.<\/p>\n If you\u2019re the principal beneficiary, you get to make the decisions. If you\u2019re not the only one, you\u2019ll have to agree with your younger brother for once in your life.<\/p>\n Refuse it.<\/strong> If you\u2019re going to end up paying out more than you\u2019d make from selling, it may be worth refusing the inheritance altogether, especially if it doesn\u2019t hold sentimental value.<\/p>\n Live in it.<\/strong> Whether you lived in the home yourself at one point, have good memories of holiday events at your parents\u2019 or just can\u2019t shake the smell of your dad\u2019s cologne in every room, being sentimental about a house is normal.<\/p>\n You have the option to live in the house. If you decide to sell it later after living in it for at least two years, you may be able to take the home sale tax exclusion.<\/p>\n Rent it out.<\/strong> So long as the property is in good repair, you can make additional income and offset some of the property taxes and mortgage costs. To rent it out, you will need to refinance the property in your name and keep the house in good condition.<\/p>\n Sell it.<\/strong> Putting the house up for sale entails a whole new line of questioning about legal ramifications and readying it for market.<\/p>\n It\u2019s no surprise Uncle Sam gets his take when you sell an inherited property. There are rules and loopholes. No matter which tax laws apply to you, selling an inherited home counts as a reportable event.<\/p>\n Estate tax<\/strong> If you, like most of us, aren\u2019t dealing with quite that many zeros, forget about the estate tax and focus on the stepped-up tax basis.<\/p>\n Stepped-up tax basis<\/strong> Inheritance tax<\/strong> It doesn\u2019t apply to spouses and often exempts sons, daughters and parents.<\/p>\n Example:<\/strong> Your bitter Aunt Mildred lived in the middle of Kentucky and didn\u2019t like any of her family, so she decided to give her estate to her cat upon her death. Her cat, who is not her immediate blood relative, would need to pay the inheritance tax.<\/p>\n Go through stuff.<\/strong> Unfortunately, the obligation to sift through the deceased\u2019s belongings doesn\u2019t ever come at an opportune time.<\/p>\n If you\u2019re DIYing this process, be kind to yourself. Save a few items that represent the person best. Donate or hold a yard sale for the rest. Invite family over to help. Uncork a bottle of wine (or two) and make the experience a flood of happy memories and funny stories.<\/p>\n If going through your loved one\u2019s belongings sounds like something out of your recurring adult nightmare, or it\u2019s simply too emotionally draining to handle, hire out the task.<\/p>\nWho\u2019s in the will?<\/h2>\n
What are my options?<\/h2>\n
\nIt might seem crazy, but sometimes inheriting property comes with too much-unwanted responsibility \u2014 an underwater mortgage, tax liens, maintenance, repairs or worse.<\/p>\n
\nIf you had your first kiss on that front porch swing, your brother learned to ride his bike in that cracked driveway, or you have distinct memories of your father reading in his leather armchair with his glasses teetering on the end of his nose in that living room, it can be pretty hard to stick a price tag on a signpost on the lawn and walk away.<\/p>\n
\nIf you can\u2019t quite stomach the mental picture of sleeping in the master bedroom your parents used to sleep in, but aren\u2019t ready to put the house on the market, renting it is a good alternative.<\/p>\n
\nProbate is the legal process that validates the will. Probate laws differ in every state but the process must happen pre-sale. In California, for example, as well as in some other states, the executor of the will is responsible for keeping the property safe and maintained during the legal process.<\/p>\nWhat are all these taxes?<\/h2>\n
\nThe federal estate tax<\/a> only applies to estates valued over $5.49 million (or $10.98 million if married, filing jointly) as of 2017. A 40% tax is slapped on the excess value. Mind you, this applies to the entire estate, not just the house. Some states also have their own estate taxes.<\/p>\n
\nThe stepped-up tax basis<\/a> is the current (at time of death) appraised value. Say your grandmother bought the house in 1906 for $20,000 and at the time of her death, it\u2019s worth $720,000. If you sell it for more than its appraised value \u2014 say $750,000, you\u2019ll only pay capital tax on the $30,000 gain.<\/p>\n
\nOnly six states currently collect the inheritance tax,<\/a> colloquially referred to as the \u201cdeath tax\u201d:<\/p>\n\n
How do I sell inherited property?<\/h2>\n
\nSorting through your family\u2019s heirlooms can be an emotional toil \u2014 sentimental objects, pieces of furniture that have been in the family for generations, hanger after hanger of clothing that smells like Mom\u2019s laundry detergent. You could be grieving or in the middle of a stress-induced spat with your siblings, but the mortgage is due on the first regardless.<\/p>\n