How to Sell an Inherited Home

Inheriting a home — whereas a considerate present from a loved one — begins a process that could be fueled with emotion. Most likely you’re receiving this property as the result of a loved one’s death and the financial process can be demanding and confusing. 

We wish to help you gain a greater comprehension to guide you on what your next steps are and five situations you may experience when inheriting real estate.

The best way to proceed is to know your options, assess the financial consequences of your choice, and seek expert assistance in navigating the tax and legal requirements. 

Tax implications: Do I need to pay tax on an inherited property?

You found out that you’ve inherited a home, you may be wondering: Do I have to pay tax on inherited property? There is no inheritance tax on property in Ohio, but what you do with the house after inheriting it will determine how much tax you have to pay. If you decide to move in, you’ll have to pay property taxes. If you decide to rent it out, you’ll have to pay rent taxes. And if you sell it, you’ll have to pay capital gains taxes and other expenses.

What are capital gains taxes?

Capital gains taxes are taxes that are paid to the government on the profits that you make when you sell an investment or asset. There are two different types of capital gains that can crew on an asset, short-term and long-term which can affect how much you will be taxed for the asset.

When you inherit a home, most of the time you can avoid capital gains taxes through a stepped-up basis, preventing you from having to pay the gains on the original price of the home. 

What is the step-up in basis tax?

The benefit of a step-up in basis taxes is that a property is inherited at the fair market value on the date of the inheritance. This eliminates the capital gains taxes on the original price the house was purchased, leaving the beneficiary to only have to pay taxes on the property from the time of inheritance to the time it is sold. 

For example, you inherited a property purchased by a loved one at the price of $125,000 and the value of the property has increased to $400,000. If the home were to be sold by the original buyer they would have to pay capital gains taxes on the $275,000 profit made. Inheriting property changes the capital gains taxes and the property is valued at the new price of when it was inherited. You’ll only be taxed on the profit of the home between the time you inherited it and the time it is sold.

I just inherited a property. What’s next?

Getting up to date.

Everything for the inherited property will have to be updated to the beneficiaries name.

Most of the time when a property is inherited, you will have to go through probate to have the property moved into your name. The exception to having to transfer through probate is if the house is inherited by deed, 

There are two ways you can avoid going through probate in Ohio which are a summary of release from the administration and release from the administration.

Most properties will exceed the threshold to qualify for these, but it is worth looking into to speed up the process of obtaining the property in your name or simply avoiding probate.

Determine who holds legal responsibility.

If the owner of the property inherited or left a will the executor will have the power to distribute the property, and the liability for paying off the mortgage will lie with the executor as well. 

A trustee holds the same power as the executor of a property in the trust.

Property in trust is left in the hands of the trustee to distribute the assets and property appropriately between all beneficiaries. 

Decide what to do with the property.

There are many different options for what can be done with the property. There are financial assessments that you have to make to decide what is best for you and how they benefit your situation. 

Does the inherited property have a mortgage?

There are a few considerations when inheriting a property with a mortgage.  

• Reverse Mortgage:  Property left to an heir with a reverse mortgage can become a financial liability if you are unsure of the options to settle the debt. A reverse mortgage is an option to pay the total mortgage once the owner no longer lives at the residence. The monthly payments continue to build in addition to interest while the home loses equity. Selling the home or paying off the property using the estate.  The heir is typically given 6 months to decide on what to do with the property and how the loan is to be paid off. 
• Assuming the Mortgage: When a homeowner dies, the cosigner of the loan automatically assumes the mortgage. Most of the time the estate will cover the mortgage loan, but heirs can also petition to have the loan placed in their name.  
• Due on Sale Clause: In the case of inherited property, when a loved one dies the beneficiary is protected from the due-on-sale clause because of the Garn-St. Germain Act. The mortgage is considered a transfer in the case of inherited property, and the original mortgage loan contact will still be enforced. 
•  Refinance the Home: Your credit and the type of mortgage loan the property has will determine if you can refinance the home. Keep in mind some mortgage loans have interest rates and could be a higher financial responsibility. 

Does the Property Need Repairs?

Inherited property can have some repairs that are needed or just need to be cleaned out. 

Repairing an old home can get expensive quickly and may not be something you want to deal with after just losing a loved one.

It is common that a property is sold in an as-is cash sale to avoid the hassle of repairing the home and having to prepare the home for the market. The proceeds of a cash sale can be used to reduce or pay off the mortgage balance. Prepping an inherited home for sale through a realtor can be hectic and lengthy, it can take months before the home is sold increasing the total amount owed on the mortgage by the end of the sale. 

• Repairs for Sale: If you are looking to sell the home, getting a home inspection of the property is a good idea. A home inspection gives you a good idea of what repairs need to be done to the home in order to make it a suitable living environment. 
• Repairs to rent: Renting the home requires maintenance updates as well as interior updates, to make the home appealing to renters. Many renters look for a home that appears nice at first glance with working updated appliances. 
• Selling for cash as-is: If you are looking to get a property off your hands and don’t want to go through the trouble of repairing it and cleaning it out, cash buyers will buy the property as-is. To sell the home at top dollar may require expensive repairs and need a lot of involvement on your end.

Are there multiple beneficiaries of the property?

Often a property will be left to multiple heirs such as siblings, or other family members. There are many options when there are multiple beneficiaries involved with inherited property.

• Sell and split the profits: Selling the property and splitting the proceeds among the beneficiaries is an easy way to distribute the funds and take the property off your hands. If there is a trustee, they ultimately hold the responsibility for making that decision and splitting the proceeds fairly. 
• Rent and split the profits: Renting is an option if the beneficiaries are interested in passive income. The beneficiaries would have to decide how the profit from the rental will be split amongst all parties and who will maintain and manage the property. 
• Buyout: If one beneficiary would like to keep the property and the others would like to sell, they have the option to buy the others out of the property and take full ownership of the property.

Partition Suit: If beneficiaries are unable to come to an agreement on what to do with the property and there is no trustee, they can opt to have a judge make the decision on what is to be done with the property. This route is time-consuming and costly in legal fees.

3 things you can do with your inherited property: Move in, rent, or sell

Once you have assessed the value of the home, figuring out what to do with the property is the next step. There are benefits and negatives to moving in, renting, or selling the property. 

Move-in

• Financial impact: Moving into an inherited home can be costly if you can’t afford to keep up with the mortgage payments and utilities. Everything for the property will have to be switched over to your name and the property will have to be maintained. 
• Tax liability: Moving into the home makes you responsible for the yearly taxes on the home when you move in. Depending on how long you’ve lived in the home and your tax bracket you may be eligible for capital gains taxes relief. 

Turn it into a rental

• Financial impact: There are a lot of financial factors to consider with renting a property out. As a landlord, you will be ultimately responsible for all of the maintenance for the property and may have to deal with tenants that don’t treat the property 
• Tax liability: Rental Properties have taxes that must be paid the same as if you owned the home, however, there are many tax write-offs that come with renting the property out, 

Sell it

• Financial impact: There are closing costs associated with selling any home, as well as realtor fees, and even staging fees. These fees can be avoided by selling to an all-cash buyer. 
• Tax liability: You will have to pay capital gains taxes on the property when it is sold based on the number of capital gains on the property from the time it was inherited to the time it is sold. 

Selling a home you’ve inherited from a loved one who has passed carries much responsibility. 

Knowing all your options when it comes to inherited property can save you a lot of time and headaches during an already stressful time. 

At Upward Home Solutions, we can assist you in selling an inherited home. We buy homes for cash, there is no need for a realtor or someone to clean out the home, we take care of that for you and can buy the home in as little as 7 days. Have the peace of mind that your inherited house is sold and you can move on. Do you want to sell an inherited home for cash in Columbus, Ohio? We can help! Send us a message or give our team a call now at 614.548.8178!