Inheriting a property can be a convoluted and overwhelming experience — especially if you have no desire to actually maintain ownership. When selling probate real estate it is important to be aware of the legalities and potential pitfalls that can occur.
Finding a real estate agent who is experienced in probate and can help you to gain an understanding of how the process works, can be worth their weight in gold.
Managing a deceased family member’s estate can be tricky — but selling a house in probate doesn’t have to be. Take the time to educate yourself and utilize the help of a professional.
What Is Probate Real Estate?
Probate is the distribution of a person’s property following their death. This begins with the courts presiding over a will to verify its authenticity. Probate can involve assets such as bank holdings, stocks, and bonds — probate real estate refers explicitly to property.
The probate process enables beneficiaries to obtain property legally promised to them in a will. If no will exists, the probate process attempts to assign legal ownership to a relative of the deceased. Determining who is entitled to inherit is determined by each state’s “intestacy” laws.
Intestacy laws vary from state to state and can be determined by a state law where the inheritance occurred — for example, if you inherit property out of state.
Here are several steps to consider when selling probate real estate.
Find Out Who the Legal Heir Is
If the property owner created a valid will, there should be a named executor who has the responsibility of distributing the assets of the deceased estate including real estate. If the property is held in a Trust, the trustee holds this responsibility.
In the case that you are the sole and only legal heir to the property, making the decision to sell your inherited property should be an easy one. When siblings inherit property together from their parents, one often has the authority to handle the real estate transaction.
If you are not the only heir, it is crucial that you come to an agreement with the other legal owners about selling the property. It is also important to note that the estate must go through probate before you can actually sell the property.
How Much Is Owed on the Inherited Property?
Often there is outstanding debt on the property in question. This will help you to decide whether to sell it or not and how much for. It is also prudent to find out what the current property taxes are and whether there are any liens on the home.
A title company can help you uncover any hidden debts that you may not be aware of. It is also wise to close any open permits on the home before you sell it, as this can hinder the sales process considerably if overlooked.
How Much Is the Inherited Property Worth?
When selling an inherited property, you need to determine how much the property is worth at the time or inheritance. This is known as the “cost basis” and is important for tax purposes.
To find out how much your inherited property is worth, you can order an appraisal from a licensed, unbiased appraiser.
Although an appraisal is useful at giving an idea of a properties value, it doesn’t guarantee that you will be able to sell your inherited home for that amount.
As well as using the services of a licensed appraiser, you can enlist the help of a local, knowledgeable real estate agent. Experienced real estate agents are experts in their market and can help you to decide upon an accurate sales price.
What Are the Tax Implications of the Inherited Home?
If you sell your inherited property, you may be liable to pay taxes to the U.S. government. The IRS requires those who sell inherited property to report proceeds as taxable income.
Inherited properties are also not included in the home sale tax exclusion. The home sale tax exclusion is a tax-free allowance of up to $250,000 of the sales proceeds for a single homeowner and $500,000 for married couples.
To qualify for the home sale tax exclusion, you have to live in the home for at least two of the previous five years.
Don’t worry, though — there is a tax rule that is advantageous for people who inherit property. This is known as the “stepped up tax basis.”
On a typical home sale, the proceeds are calculated using the purchase price in addition to the cost of improvements made to the property during ownership. Inherited property differs from this, as the tax basis is decided by the fair market value at the time of the owner’s death.
This is beneficial, as it prevents heirs from owing significant amounts of taxes on homes that have appreciated dramatically in value during the deceased person’s ownership.
Put simply, an heir is not liable to pay capital gains tax on any appreciation which may have accumulated before they take ownership.
Selling an Inherited Home
If you have thought through all of the above considerations and have decided to sell your inherited property, it is crucial that you seek the advice of a professional real estate agent.
Selling a home involves multiple steps, from market research and pricing to negotiations and closing. An experienced real estate agent can help you to navigate this process with confidence.
If the property has more than one heir, there can also be legal implications to consider. A good real estate agent has a wealth of knowledge and will be able to provide you with invaluable resources, such as a trusted real estate attorney and title company.
Selling a property that you’ve inherited from a loved one can seem overwhelming — but it doesn’t have to be an impossible task.
A trusted real estate professional can provide support and guidance throughout the sales process and ensure that it is a stress-free experience.
If you’ve inherited property, it’s likely that you’re concerned about high real estate fees — you can ease your worries by using a local Clever Partner Agent. Clever Partner Agents are all top performers in their local real estate market and will offer their full services for a lower commission rate.