Inheriting a home can be a heartwarming experience… or it can be nerve-wracking. Many times, an inherited property will be moved into by the person who inherited it, but there are times when the person decides to sell the home. Here’s some help if you’re planning on selling
- No Tax Exclusions
- Typically, when you sell a house, you can take advantage of a tax exclusion of up to $250,000 if you have lived in that property for at least two of the previous five years. Unless you plan on living in the inherited property for two years, you will not be eligible for the tax exclusion.
- Stepped-up Tax Basis
- This is the fair market value of the property at the time of the previous owner’s death. This helps the devisee from owing substantial taxes on a property that has dramatically appreciated over time.
- Where and How to Report Sale Proceeds
- Any proceeds from the sale of inherited property are required by the IRS to be reported as taxable income. The taxable amount is based on the fair market value and the tax basis.
- Difference Between Inheritance and Estate Tax
- There are differences between inheritance and estate tax which vary state-to-state. The best idea is to ask an accountant or attorney to figure out what the financial implications that come with inheriting a property.
How to Prepare for the Sale
- Clean Out Personal Belongings
- Going through a loved ones’ personal belongings can be a taxing experience. It often brings back memories of the past. Take your time with this process. Go through the possessions with other loved ones. Be prepared that it may be difficult to decide what to keep and what to give away.
- Hold a Yard Sale/Estate Sale
- Wait for The Estate to Go Through Probate
- Probate is the legal process that takes place after someone dies. During the process, the person’s will is deemed valid and the deceased person’s property is identified and inventoried.
- Determine Who Holds Legal Responsibility
- If the property owner left a will, the executor has the responsibility to handle the transaction. If the property is in a trust, the trustee holds responsibility. If siblings have inherited the property together, it is up to the siblings to appoint one person as the authority to handle the transaction.
Pricing and Negotiation
- Don’t Price too High
- You want to price your home realistically, but higher than you’re willing to settle for. High, unrealistic prices will turn potential buyers away while lower, more reasonable prices attract them. You want the price to be low enough where you will attract buyers, but high enough to encourage negotiation. Don’t settle for less than what the property is worth. A buyer will want to get the lowest price, while you as the seller will want to get the highest price. Try to settle somewhere in the middle of the two.
- Don’t Accept the First Offer You Receive
- Unless you are lucky and get a full-price offer as your first offer, don’t accept your first offer. Often times, a buyer will make their initial offer much less than they are willing to pay.
- Educate Yourself on Negotiation Tactics
- To learn more about this, read our article about negotiation tactics.
What to Watch Out For
- Elongated Probate
- In some cases, executors can keep an estate in probate for years. This allows the executor to have access to the home or other assets without transferring the ownership of the property.
- Equal Distribution
- When wills state that items are to be divided evenly, that is left up to the discretion of the siblings or other beneficiaries. There may be difficulty determining the value of assets when placing sentimental value on them.
- Disagreement Between Siblings
- There may be disagreements on who gets the property, how repairs should be handled, the purchase price, or anything else that involves the property.