Whether it is property, money, or other assets, inheritance can provide a substantial financial boost. But, with this newfound money comes newfound responsibility. How you deal with it can make a big difference in your financial future.
If you have recently inherited a property, you may be wondering what to do next. If you already have a house, do not plan to move, and cannot see potential in renting it out or using it as a vacation home, selling may be your best option. Still, even if you are ready to sell, there are some things you should keep in mind.
Below, you will find advice on how to sell an inherited property, including learning about the probate process, paying all the required taxes, and deciding how to sell the property. Let's get started!
Step 1: Determine If You Need to Go Through Probate
To sell an inherited property, you need to determine if it is necessary to go through probate. Probate is the legal process of transferring ownership of an asset — like a house — from a deceased person to their beneficiaries. In most cases, probate is unavoidable if the deceased person owned any property in their name alone.
If the deceased person left a will, the executor of the estate is responsible for handling the probate process. If there is no will, the court appoints an administrator to manage the estate.
The probate process can be complicated, so it is crucial to have a clear understanding of all the elements before getting started. It is best to learn how long does probate take and what it may require. Once you know if you need to go through probate, you can start taking the necessary steps to sell the property.
Step 2: Determine If You Are the Sole Heir (and Get the Agreement If Not)
If you want to sell an inherited property, it is vital to determine if you are the sole heir. If that is the case, you can move forward with the sale without any issues. Otherwise, you need to get a written agreement from all heirs before selling the property.
Furthermore, in case of multiple heirs, you will need to get everyone on board with the sale. Doing so can be difficult, especially if you disagree about what to do with the property.
Step 3: Pay All Required Taxes
When you inherit a property, you may be responsible for paying taxes on the inheritance, as well as capital gain and income taxes. These taxes can vary depending on the value of the property and your relationship to the deceased.
Inheritance tax is a state tax paid on the value of the property that is being inherited. Not all states have inheritance taxes, but for those that do include Iowa, Nebraska, Maryland, and Kentucky.
Capital gain tax is a federal tax paid on the profit from the sale of an asset. If you sell the property for more than you paid for it, you may be responsible for paying capital gain tax. The rate can range from 18% to 40%, depending on your situation.
Income tax is a federal tax paid on all forms of income, including rental income. If you rent out the property, you will need to pay income tax on the rent you receive.
It is crucial to consult with a tax professional to determine which taxes you are responsible for paying.
Step 4: Decide How You Want to Sell the Property
Once you have determined if you need to go through probate and are the sole heir, it is time to start thinking about how you want to sell the property. There are a few different options to consider, each with its own set of pros and cons.
Option 1: Sell the Property Yourself
One option is to sell the property yourself. It can be a good choice if you are familiar with the real estate market and feel comfortable handling the sale on your own.
The most significant advantage of selling the property yourself is that you do not have to pay a commission to a real estate agent. It can save you a ton of money, especially if the property is worth a lot of cash.
The downside of selling the property yourself is that it can be time-consuming and complicated. You need to handle all aspects of the sale, from marketing the property to negotiating with buyers. This option may not be the best choice if you are unfamiliar with the real estate market.
Option 2: Hire a Real Estate Agent
If you are uncomfortable selling the property all by yourself, you can hire a real estate agent to help you. A real estate agent will list the property for sale and handle all aspects of the process, from marketing to negotiation.
Hiring a real estate agent will save you time and hassle. You do not have to worry about marketing the property or dealing with buyers. The agent will handle all of that for you.
Nonetheless, if you work with a professional, you will have to pay a commission. Most agents charge a commission of 5% to 6% of the sale price, so it is critical to factor that into your decision.
Option 3: Sell the Property at Auction
Another option is to sell the property at auction. This option could be beneficial if you want to sell the property quickly or are unsure what it is worth.
The upside of selling at an auction is that it is fast and efficient. You will sell the property to the highest bidder, so you do not have to worry about negotiating with buyers. And, because the sale is public, you can receive multiple bids, potentially resulting in a higher sales price.
Nevertheless, you may not get as much for the property as you would if you sold it yourself or hired a real estate agent. And, because the sale is public, you may not have as much control over who buys the property.
The Bottom Line
If you plan to sell an inherited property, ensure that you understand the probate process. You might also want to determine if you are the sole heir, pay all required taxes, and decide how you want to sell the property.
Be wary that if there are multiple heirs involved, you need to get everyone on board with the sale. It can be a complicated and time-consuming process, so be patient. Take your time and weigh all of your options before making a decision. With some planning and preparation, you can make the sale process go smoothly.
You can always consult a real estate agent or attorney if you do not know what to do next. They can help you understand the process and make the best decision for your situation.