What To Know When You Inherit a Property from probate
The death of a loved one leads to unimagined misery among those left. When you inherit property from them, the next stage involves authenticating and transferring assets to you (the next of kin). This legal procedure is known as probate.
Before the court grants you ownership of the property, it is best to do the following.
Determine who is listed in the will
If a will was drawn up by the deceased, it probably points out who will receive the property. It could be one individual – the principal beneficiary, or several people, such as siblings.
If the decedent left no will, the process needs to follow specific state laws. It is best to hire an attorney to help out.
As the principal beneficiary, you are the sold decision maker. When other beneficiaries are involved, decisions must be made collectively.
Know your options
Inheriting a property means that you accept taking over all manner of responsibilities pertaining to that piece of real estate. Attending to lingering tax liens, necessary repairs, upgrades, or maintenance, and/or an outstanding mortgage may not be your cup of tea. If owning the property ends up costing more than you get from selling, refusing to take over the estate may be an excellent way to go, especially if there is no sentimental value to lose and no significant upside to doing so.
Live in it
You have the option of residing in the property (for example – if it invokes special memories or if moving would benefit your current situation). At times, houses have sentimental value that exceeds the financial value. You might find it hard to put your inherited house up for sale, choosing to just walk away.
Rent it out
You could lease or rent the property to a tenant if you are not willing to sell or live in it. If it is in an excellent state, the rental income could act as a good way of offsetting mortgage costs and property taxes on another owned property. You can also take tax depreciation over 27.5 years with this method. Talk to your CPA. Of course, you will need to have the property registered in your name before renting it out.
The legal process that authenticates a will is known as probate. The laws that govern this process differ between states, but require validation to take place before the property is put up for sale.
In several states, an executor is charged with securing and maintaining the property as the legal process moves through the necessary stages. The decision to sell the property opens up a vast world of legal implications of preparing a house ready for the property market. If you have an inherited property you would like to sell, give us a call and we can help.
If you decide to sell the property, expect to pay a small share of taxes on the gains from the property’s sale. Common taxes include:
The federal government charges estate tax on property exceeding $5.49 million in value. The excess value is subject to a 40% tax. Keep in mind that the value includes the entire property.
Stepped-up tax is imposed on the appraised value of the property at the time of death. If you inherited property worth $720,000 and you later sell it for $750,000, you only pay tax on the $30,000 gained.
This form of tax is only applicable in Kentucky, Iowa, Nebraska, Pennsylvania, New Jersey and Maryland. It is not imposed on property inherited by spouses, parents, daughters and sons.
If you have an inherited property and need questions answered, or are thinking of selling, give us a call. Door&Key can give you a free consultation on your options. We can also refer you to one of our trusted partners if needed.