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I Inherited a House, Now What?

Inheriting a house after the loss of a loved one can be an extremely confusing time. The purpose of this article will be to help you sell an inherited home in an efficient manner with minimal headache.


Between the emotions and the business that accompanies the process of selling an inherited home that this can be an overwhelming time.  ​

Four Easy Steps to Selling an Inherited Home

Step 1: Transfer the Insurance Policy to your name and make sure to communicate with the insurance company if the home is vacant.

Did you know? Unoccupied homes are subject to different insurance policies. And, therefore, insurance companies may void your current home insurance policy if the home lies vacant for an extended period of time. Avoid this headache and ensure the home is protected from disaster by taking care of the insurance transfer early.

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Step 2: Review the mortgages, taxes, and utilities associated with the home, transfer all of the bills into your name and cancel any unnecessary costs.

Bills and TaxesAvoid paying high bills with late fees later on in the process by ensuring that you organize and pay all of the bills immediately. This can be an extremely difficult task to get yourself to do but can be extremely costly if you don't get it done.  The goal here is to identify all of the bills that will need to be paid and ensure that you can afford to pay them.


Mortgages: This is one of the most important aspects of this article and will be very situation-specific so use this information to make informed decisions after talking to a professional familiar with your situation.

The first thing to figure out - how much is still owed on the mortgage, then find out if there is a due-on-sale clause (if the mortgage does contain a due-on-sale, then the mortgage balance becomes due when the property transfers to someone else).


If you inherited the home from a family member then usually you will be able to just continue paying the mortgage and face no backlash from the mortgage companies. Be clear when communicating with the mortgage companies in order to comply with the mortgage terms and consult someone for help if necessary.


From here there can be multiple scenarios to be covered:

1. The home is underwater: Your best bet is probably to contact the bank and try to initiate a short sale. Experienced investors may be able to work with you in order to complete this task with minimal headaches.


2. The home can be sold on the market: This may be the most work and the longest timeline, but it can definitely get you the most money. But we will mention some of the issues that this option entails to be fair. In order to accomplish this, you'll have to interview realtors and decide whom to list the home with, which is easy enough, but then you'll have to gather the list of renovations that the property requires.


If you need help estimating the rehab costs then you can use Nailed-It in order to figure out renovations costs and rehab costs for an inherited home.  To sell the home, you’ll come up with a list of work that needs to be done and you’ll also probably get a similar list from your realtor.  There will be showings and time commitments throughout the process, but this is definitely the most conventional way to sell an inherited house.


3. The house requires a lot of repairs: If this is the situation then you definitely want to consider getting a cash offer. Like I mentioned, use Nailed-It, get an accurate estimate of the rehab costs and evaluate the situation. If you don't want to deal with the rehab projects then getting cash offers for the home can be a simple way for you to move on with your life and avoid long weekends keeping up with a vacant house.


Some things to think about if you don't live near the home - you will need to pay for exterior upkeep during winter months in the north and will need to consider landscaping costs as well. Towns may levy fines for lackluster exterior upkeep.I

3. Decide path to execute: Sell It, Rent It, Or Live In It.

We covered sell it above.


If you decide to rent it, we'll keep it super simple here and tell you to do your homework before you decide to be a landlord. If you aren't willing to do that homework, then I'd recommend NOT becoming a landlord. First off, costs are on average 1/2 of your rent as a rule of thumb EXCLUDING your mortgage, so you won't be getting rich quickly off of one rental. If you want to get into real estate investing than this may be the perfect opportunity but do your homework and make sure you are really committed.

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4. Pay Taxes after Sale.

One of the biggest concerns, when you inherit a home, is capital gains tax.  So first off, let me mention that I’m not a tax professional and that you should consult a CPA in order to make this decision.  With that said, the capital gains tax is applied to the gains that occur between the time that you inherit the home and the time that you sell the home.  


Most people believe that the capital gains will be based on the appreciation between the time the home was purchased and the sales date, but this does not turn out to be the case.  The capital gains will be assessed on the day you inherit the house based off of market value (comparable sold properties at that time). Not nearly as bad as the often-rumored costs associated with inheriting a home, but check with a CPA to know exactly for your situation.

How to avoid paying capital gains tax on inherited property?

As we mentioned, utilizing the IRS will allow you to use the Fair Market Value at the time of the decedent's death.  Interestingly enough, the IRS will actually allow you to choose a date between the date of death and the subsequent 9 months.  This means that by selling the home within 9 months it is possible to use the sales date by changing the date that you would like to utilize to determine FMV via Form 706 (You can find the instruction to avoid paying capital gains taxes on inherited properties here). Again we are not your CPA's so this information should be discussed with your CPA.