Dealing with an inherited property or a property in probate can be a difficult and time-consuming process. Because of the many laws associated, an inherited property can take months before the title changes hands. When it finally does, you can be left with a property that hasn’t been updated in years and is in dire need of maintenance.
In this article, we’ll describe the process of selling inherited property to better understand how to navigate the real estate market once this situation occurs. With CT Homes’ help, you’ll be able to sell an inherited property much easier.
Common Challenges When Selling An Inherited Property
If you are faced with this type of situation, it is important to focus on the high-priority hurdles first. Here are the four biggest challenges to selling an inherited property with deferred maintenance:
Limited Capital to Fix Up:
When inheriting property, your money may be tied up in other properties, credit may be maxed, or you not have the capital to do the work the property requires. Buyers almost universally want to buy a turn-key property unless they get a discount. If you don’t make improvements, your buyer pool will be limited and it will be reflected in your sales price. You can try finding capital through credit cards, private lenders, or short-term partnerships, but each option has drawbacks.
High Carrying Costs:
The biggest issue with not selling inherited property is the carrying costs. Every month you own the property, you cover property taxes, insurance, utilities, and many other expenses. By not selling inherited property quickly, you can fall behind, forcing more desperation and prompting you to make decisions with the property you normally wouldn’t.
Selling A Property That Needs Work:
Without the capital to make improvements, the sale of the inherited property might be in an as-is condition. You essentially defer the responsibility of the improvements to the buyer. Many buyers lack the desire or financial wherewithal to throw money into a new home purchase. Buyers can struggle coming up with a down payment, let alone money for improvements. This leaves you with a buyer pool of investors and buyers looking for a discount.
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Lack Of Local Market Knowledge:
An inherited property might not come from your immediate family, it could be from an extended family member. This requires a different strategy, regardless of what you want to do with the property. Make the right improvements for the market to maximize the profit and expedite the sale.
The Sale of Inherited Property FAQs
Let’s answer some of the most common questions that are asked about inherited properties:
What is the Timeframe for Selling An Inherited Property?
Going through probate can be a long and grueling process, even with a will. By the time you take ownership, you can feel drained and beaten down. The last thing you want to do is wait another extended period to complete your improvements and wait for a buyer. If there is an extensive amount of work needed in the property, you have two choices.
- Do whatever repairs and work that is necessary, regardless of how long it takes. Waiting a month or two to get the work done has significant advantages.
- Entertain a quick sale and take the first halfway decent offer. If not, it can easily be another handful of months before another offer comes your way.
Most buyers want their properties fresh, updated, and turn key. If there is deferred maintenance, you need to do the work before putting the home on the market.
Can Siblings Force the Sale of Inherited Property?
If a will/trust exists, one of the heirs will be the executor. The executor is the decision-maker and has the power to sell the property without permission from other heirs. But sometimes, no executor is chosen, which is a challenging situation for the heirs. Three things can happen:
- Agreement
- Buyout
- Partition
If you or a loved one is planning a will/trust, make sure there is an assigned executor so you can avoid these problems.
How Does Selling Inherited Property Affect Taxes?
When selling inherited property, you may have to pay capital gains tax if you earn a net profit from the sale. The federal government will tax a portion of the amount you profited. The current capital gains tax rates are 0%, 15%, or 20%, depending on tax brackets. When you sell a home normally, you would pay capital gains tax on what you earned from the sale compared against the original price.
Inherited properties work differently. With inherited properties, the home is appraised after the death and given a market value. Let’s assume that an owner dies and the house is given a value of $400,000. If the house sold for $450,000, the tax basis would be $50,000. This is a stepped-up tax basis, the home’s original value is not a factor.
Heads Up: As of early 2021, there are talks by the Biden Administration to raise the capital gains tax for individuals earning at least $1 million per year.
CT Homes is not a tax expert. If you’re seeking tax advice, be sure to consult with a certified tax professional.
