The probate process | Should you sell an inherited house? | Selling options | Capital gains tax | FAQs
Selling an inherited house is often a financial windfall, but it can also be a long, complicated process. If you've recently inherited property and you're wondering how to sell it fast and with as little stress as possible, we've got you covered.
First, it pays to understand all the costs associated with inheriting a property and your selling options. Listing your inherited house with a realtor on the open market may not be the best choice, especially if you need to sell ASAP.
Read on to learn everything you need to know about selling inherited property, including your selling options, and the potential tax implications.
Clever Offers is your best option if you need to get a fast offer on your inherited property. Clever will connect you with a top local realtor, who will bring you fair offers from top cash home buyers in your area. Get fair cash offers from top local buyers now!
Selling an inherited house: The probate process
Before you can sell an inherited house, the estate must first go through a legal process known as probate, which can last up to 24 months.
The process begins when a court reviews the deceased's will to determine its validity and authenticity. All assets are frozen and cannot be sold during this review period.
Once the court approves the will, an executor of the will is appointed to act on behalf of the wishes of the deceased. The executor is responsible for paying all debts, including:
Any remaining mortgage balances.
Medical bills.
Hospice and nursing facility expenses.
Burial and funeral costs.
A final tax return covering all federal, state, and local taxes owed.
After repaying all debts, the executor distributes what's left of the estate to the heirs. You can sell the inherited property once this process is completed.
✍Important Note: Each state has its own probate laws. Check with your estate, probate attorney, and local courts to determine exactly what the process entails. |
Should you sell an inherited house?
Reasons to sell
Get your financial windfall
Property inherited from a deceased relative can be sold and turned into cash. If you choose to sell your inherited home ASAP, you can access and use funds at your discretion.
Selling an inherited house can free up cash to pay off your primary mortgage, buy a new home, pay off consumer debts, invest for retirement, or fund another life expense.
Avoid homeownership costs
Besides not having to make mortgage payments, selling an inherited property lets you avoid the various upkeep and maintenance costs associated with owning a home, including:
Repairs: $170 per month
HOA fees: $250 per month
Utility bills: $200 per month
Property taxes: $220 per month
Lawn care and snow removal: $130 per month
Homeowners insurance: $80[1]
Selling an inherited home fast is the best option for those to want to avoid paying for constant upkeep and maintenance, especially if you don't plan to live in the house.
Reasons to wait to sell
Weak housing market
If you want to get the most value for your home, it could make sense to wait until market conditions favor sellers in your market.
A seller's market occurs when housing demand exceeds supply – meaning there are many interested buyers but not enough housing to meet that demand. It makes it easier to sell at your desired price.
Is your home located in a seller's market? Learn more about local market conditions and your selling options by talking to a real estate agent. Clever can connect you to a local professional for more guidance.
Reduce your tax burden
Moving into the inherited house and waiting to sell it could save you thousands. There are two potential ways to save on taxes:
Your gains on the home sale may be taxed at a lower rate if you wait to sell after owning the home for at least one year.
Sellers who live in the home for several years may be completely exempt from capital gains tax.
Learn more about the potential taxes on the sale of inherited property, and ask a tax professional for more specific advice.
More time to prep the home for sale
Just not ready to sell your inherited house yet? Waiting can give you more time to prep it for sale.
Inheritors don't just inherit the property but also everything inside of it. So it may take some time to sort through your belongings to determine what to keep, sell, or donate.
Taking the extra time to prep also gives you time to consider making any renovations or repairs to the home before selling it.
Options for selling an inherited house
Sell as-is to a cash home buyer
Companies that buy houses for cash are a good option if you need to sell ASAP since they can close on the sale within weeks.
Cash buyers - including iBuyers and real estate investors – pay all cash for your home with no contingencies. You can avoid buyer showings, home inspections, appraisals, and a drawn-out closing process.
Cash buyers may offer you less than what your home is worth. Most pay between 50% to 75% of its fair market value and focus on buying distressed properties or homes requiring repairs. But they provide the quickest, most convenient option.
Some people who inherit a home may not want to worry about upkeep and maintenance, which can cost hundreds (if not thousands) of dollars each month. Selling to a cash buyer solves this problem, closing as quickly as 14 days after signing the contract.
List with a real estate agent
If you have more time to sell your inherited property, it may be a good idea to list it with the help of a local realtor. Here are a few key benefits:
A good agent will help you determine the fair market value of your inherited property with a comparative market analysis (CMA) report and help you set an optimal listing price.
Realtors market and advertise your property online on popular real estate websites like Zillow, Trulia, and Realtor.com, attracting more potential buyers.
You gain the professional guidance of an expert. A realtor can help you negotiate with buyers, weigh offers, and guide you through the closing process.
However, listing a home with a realtor is more time-consuming when compared with selling to a cash buyer or investor. It took U.S. homeowners a median of 51 days to receive and accept an offer in October 2022.
Add the typical 30 to 45-day closing process and your real estate transaction may take at least three months, from start to finish.
Selling an inherited house: The tax implications
Types of taxes for inherited homes 💰 | |
|---|---|
Taxes paid to the government for profits earned from the sale of an asset | |
State tax paid by a person who inherits a property. Only six states charge inheritance taxes | |
Federal or state tax on a person’s assets after death. Only 12 states charge estate taxes | |
Taxes are a legitimate concern when selling an inherited house. Many sellers think they'll get hit with a huge, unaffordable tax bill. Fortunately, there are many benefits that can help you avoid or reduce your tax burden.
1. Capital gains tax for inherited property
Inheritors only need to pay capital gains taxes if they sell their inherited property at a gain. The taxes also get reduced through a provision known as the "stepped-up" tax basis.
The stepped-up tax basis allows those who inherit a house to benefit from a lower capital gains tax rate after selling the property. Here's how it works:
During the probate process, an appraiser determines the home’s fair market value (FMV) on the date of the original owner’s death.
The home's new FMV is known as the "stepped-up basis."
When you sell the house, you get taxed on the difference between the sales price and the stepped-up basis – not the owner's original purchase price.
Capital gains example
You inherit a house with an FMV of $300,000.
You sell the property at a price of $325,000 after owning it for one year.
You owe capital gains taxes on $25,000 in profit, and the tax bill would come out to $3,750, based on a 15% tax rate.
Long-term capital gains are currently taxed at 0% to 20%, depending on your income and tax filing status.
Capital gains may also get charged at the state level. Contact your accountant or real estate attorney for professional advice.
How to avoid capital gains tax on inherited property
You may be eligible for a capital gains tax exclusion if you move into your inherited home before you sell.
If you qualify, you may be exempt from capital gains taxes on the first $250,000 (if filing as single) or $500,000 (if filing a joint tax return with a spouse).
To qualify, you must use the inherited home as your primary residence for two years out of a five-year period, and you must not have used the capital gains exclusion within the past two years.
Thankfully, most people who inherit a home won't have to pay inheritance taxes.
Only six states – Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania – have inheritance tax laws. The rules differ by state, the estate size, and asset type.
Some states exempt the deceased's spouse and children, which means houses that go to them aren't subject to the inheritance tax.
Only high-value estates get charged federal and state taxes.
Estate taxes get charged on a person's assets after death. In 2022, the federal estate tax applied to estates worth more than $12.06 million, rising to $12.92 million in 2023. [2]
Twelve states and the District of Columbia also collect estate taxes at the state level. The exemption amount is over $1 million for each state that charges the tax.
Estate and inheritance tax locations
Here is a map showing the states that pay inheritance and estate taxes. The only state that pays both is Maryland.
Selling an inherited house: FAQs
The best thing to do with an inherited property depends on your personal circumstances and long-term goals. You can either keep the house and live in it, rent it, give it away to family members, or sell it. Learn whether or not you should sell an inherited property.
Yes. It takes an average of three months to sell a house on the open market from start to finish. But several companies that buy houses for cash can close in as quickly as 14 days. Learn more about your selling options and which route works best for you.
You might be able to avoid capital gains tax on the sale of the inherited property if you decide to live in the home for at least two years. The home sale tax exclusion allows homeowners to exclude up to $500,000 on home sale gains. Read more about taxes on the sale of inherited property .
American Family Insurance. "How Much Are Average Home Maintenance Costs?." Accessed March 19, 2021.
IRS Estate Tax. "IRS Estate Tax Filing Threshold for 2022 and 2023." Accessed November 22, 2022.