Inheriting a house from your parents or getting it as a gift from someone is something worth being proud of. However, inheriting this house comes with responsibilities, and it depends on how the previous owner handled the house. The whole inheriting process, if not managed well, can turn stressful and confusing. What happens next? After getting this house, you have to know your next options. Will you live in this house, rent it out or sell it? You also have to understand the consequences of the steps you take. It is essential getting an expert who will guide you on this. Here are some tips to guide you.
Do You Have To Pay Taxes On The Inherited Property?
Most people do wonder if inherited properties have tax obligations. In as long as you got the house for free, the liabilities and bills are still there. The actions you take on the rented property will determine the kind of taxes you pay. You might be required to pay the property taxes and capital gains, plus others, but this entirely depends on the house location. Capital gains are made to the government when you sell the house, and step-up taxes are charged depending on the house’s current market and are applicable from the time you got the inheritance.
Steps To Take After Inheriting The House
There are many things you can do with your inherited house. The current implications of the property, including the mortgages, will help in making the ultimate decision. Other than renting out, you can also start selling a house that you inherited. When selling, you also have to check on the advantages, disadvantages, and requirements. Here are some things to consider before making the final decision:
- Is there a mortgage on the property? If there are mortgages to the inherited property, you must look into them deeply before deciding on the next step. Some of these mortgages will decide whether to sell or lease the house. If the mortgage has a due-on-sale part, it means your property is near repossession. It’s advisable to make urgent payments or sell the house and clear the mortgage. If it’s a reverse mortgage, you can sell the house and service it or reapply the loan and pay it with your name. If the property you inherited is underwater, the bank might let you sell it at whatever cost and pay the remaining loan even when it’s not a full amount. Lastly, if the mortgage got paid by the state, it means you have nothing to lose since the house is free, and you can decide anything with it.
- Does the property need repairs? Most inherited properties are old and worn out. They might require more repairs than what meets the eye. If you need to repair the house to sell, you have to make significant changes to uplift the house to attract ready buyers and get good money.
On the other side, if you want to repair it for rent, you must consider the modern finishes, including paint and floors, for considerable rent from the tenants. At times, when you don’t have extra money, you can sell the house the way it is at its market price. Although it may not fetch as much, it helps deal with the inherited house without incurring expenses.
What If There Are Multiple Stakeholders On The Property?
Sometimes, you don’t inherit the property alone. There might be other stakeholders, including siblings or family members. If such happens, there are some options you can take, including the below:
- Buyout: If your siblings agree to sell the house, you can buy it and develop it in a better way you will want it to be. You only have to settle the expenses and have an agreement on the sale.
- Promissory note: If the other family member wants to sell the house, but you don’t have instant cash, you can write a letter detailing how you will buy the house and pay your sibling their share in installments until the last bit.
- Sell and share the profits: Sometimes, no one will want the house. In this case, you can sell it entirely and decide on the ratio to share the profits.
- Suit for partition: Just like other shared properties, you may disagree on the sale. This will prompt you to seek legal services on how to share the proceeds of the house. Unfortunately, this is an expensive process that requires paying legal fees and other commissions.
Inheriting a property comes with its challenges, as highlighted above. You can decide to rent it out, sell or move in. Whatever you choose, it’s essential to consider all the legal matters, including taxes, to avoid inconveniences. It’s vital having an expert hold your hand during this process. All the procedures will depend on the tax implications and the financial impact of the inherited house.