If you inherit property handed down through a trust or beneficiary deed, it may be relatively simple to sell. On the other hand, if an owner dies without a will, the property may need to go through a lengthy probate process before you're able to sell it.
Whether or not the property goes through probate, you'll still need to go through the traditional selling process when selling your inherited house, including hiring a real estate agent, marketing the home, and closing on the sale.
Our guide will help you determine the costs and details of selling an inherited property in Arizona.
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Disclaimer: You shouldn't construe this article as legal advice. Clever Real Estate recommends consulting a real estate agent or a real estate attorney as you go through the process of selling an inherited property.
Understanding the probate process
Probate sales in Arizona are necessary when a property owner dies without clearly outlining who should inherit their assets. Probate involves a court overseeing how the assets will be distributed to make sure the estate can pay off the deceased's debts and fairly distribute assets.
Typically, an estate must go through probate if:
- The property owner dies without a will
- The owner's will is contested or invalid
- The will needs to be validated to properly distribute assets to heirs
It's the executor's responsibility to file a death certificate with the local court to initiate probate. If an executor is not named in the will, the probate court will appoint an executor to oversee the estate's distribution.
Ideally, the probate process should be initiated as soon as possible. Probate is a long process, taking as long as five months to several years in Arizona.[2]
Not all inherited properties will need to go through probate.
- Properties that are jointly owned will go to the other owner(s) if one owner dies.
- If the owner places their assets in a trust before they die, they can designate beneficiaries with more control than just a will.
- Houses placed in an irrevocable trust must be sold according to the terms of the trust.
In Arizona, you have another option to avoid probate: a transfer-on-death (TOD) deed, sometimes known as a beneficiary deed. A TOD deed is like a regular deed used to transfer property, except it automatically takes effect once the owner dies. A TOD deed must be officially filed with the county where the property is located.
Transfer-on-death deeds are usually simpler and less expensive to set up than trusts.
Remember that each estate is unique, and an estate planning attorney can help you choose the right moves for you and your heirs.
Selling inherited property with multiple owners in Arizona
If you have inherited a property along with other beneficiaries, it's important to begin discussing your options with them as soon as possible.
Selling the property means coordinating with the other heirs about price, marketing, and negotiations with the buyer.
Holding onto the property means figuring out the best way to jointly own the property. You have two main options for joint ownership:
- Joint tenancy: Creates an equal share among the owners. Each owner must agree before a portion can be sold.
- Tenancy in common: An equal share among the owners in which each owner has the right to sell independently.
A real estate attorney can help with modifying joint ownership. In Arizona, an attorney costs about $284 per hour.[3]
Is there a time limit on selling inherited property?
No, there is no standard deadline for selling an inherited property.
If the estate enters probate, the executor of the estate has a responsibility to sell the property before the probate process is over. In Arizona, the probate process generally takes five months to several years.[2]
However, the probate timeframe in Arizona will vary depending on the size and complexity of the estate. Small estates with few creditors and beneficiaries may wrap up probate quickly. Large, complex estates with far-flung beneficiaries and creditors that must be tracked down will take longer.
If you are both the executor and a beneficiary—for example, the eldest of several siblings who inherited a parent's estate—you may feel pressure to sell quickly. However, everyone must remain patient until the probate process is completed.
When do capital gains taxes kick in?
In most cases, if you're selling an inherited property you'll be responsible for taxes on the profits, or capital gains. However, there are several ways to avoid capital gains taxes, such as selling the home soon after you inherit it.
Taxes on inherited property in Arizona
There are several different types of taxes you'll need to consider when inheriting, owning, and eventually selling an inherited property:
- Estate taxes are paid from the estate before assets are distributed.
- Inheritance taxes are paid by the beneficiary after assets are distributed.
- Property taxes are owed to the local government on a yearly basis.
- Capital gains taxes are levied on the profit from the sale of assets.
Estate taxes on inherited property in Arizona
Estate taxes are paid from the estate before anything is distributed among the beneficiaries.
Estates are taxed at the federal level at a progressive rate of 18–40%. You'll owe federal estate taxes if the value of the estate is greater than the following amounts:[4]
| Year of death | Estate value |
|---|---|
| 2023 | $12,920,000 |
| 2024 | $13,610,000 |
| 2025 | $13,990,000 |
Some states impose an estate tax at the state level, as well. Fortunately, Arizona does not impose an estate tax.[5]
Inheritance taxes on property in Arizona
Good news: Arizona does not impose an inheritance tax. [6]
Property taxes on inherited property in Arizona
Before you can sell an inherited property, you need to pay property taxes for the period in which it was in your hands.
If you own the property for less than a year before selling, you'll pay a prorated amount. Keep in mind that if the previous owner was behind on their taxes, there may be a lien on the estate that must be paid before you can sell.
The average effective property tax rate in Arizona is 0.64% of the home's value per year. Property taxes vary greatly from one town to another. In Arizona, property taxes could be as low as 0.42% or as high as 1.01%, depending on where the property is located.
💸 Learn more about real estate taxes in Arizona
Capital gains taxes when selling inherited property in Arizona
If you sell an inherited home for more than the fair market value at the time of inheritance, you may owe capital gains taxes.
Capital gains are the money you make when you sell an asset. If you purchase a home for $400,000 and sell it years later for $600,000, that's a gain of $200,000. That profit is subject to federal taxes, and in many cases, state taxes.
| Base price (purchase price) | $400,000 |
| Selling price | $600,000 |
| Profit | $200,000 |
When inheriting property, the base price is adjusted to the fair market value at the time of the owner's death.[7] In other words, you're not responsible for the increase in value over the previous owner's lifetime, only for the time when the home is in your possession.
For example, let's say you inherit a home worth $600,000 and then sell it for $615,000 shortly thereafter. You've made $15,000 on the sale, which may be taxable as capital gains.
| Base price (fair market value at time of owner's death) | $600,000 |
| Selling price | $615,000 |
| Profit | $15,000 |
Whether you owe federal capital gains on that $15,000 depends upon your income and your tax filing status. See the drawer below to see what federal taxes you may owe on capital gains.
A capital gains rate of 0% applies if your taxable income is less than or equal to:
-
- $47,025 for single and married filing separately
-
- $94,050 for married filing jointly and qualifying surviving spouse; and
-
- $63,000 for head of household.
A capital gains rate of 15% applies if your taxable income is:
-
- More than $47,025 but less than or equal to $518,900 for single;
-
- More than $47,025 but less than or equal to $291,850 for married filing separately;
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- More than $94,050 but less than or equal to $583,750 for married filing jointly and qualifying surviving spouse; and
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- More than $63,000 but less than or equal to $551,350 for head of household.
However, a capital gains rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.[1]
In most states, capital gains are taxed as income at the state level, as well.
Arizona generally follows the same exclusion rules as the IRS, allowing $250,000 of gain on home sales ($500,000 for married joint filers), if they owned and used the home as their principal residence for two out of the five years before the sale.
Arizona is one of a handful of states that taxes long-term capital gains at a lower rate than ordinary income. Arizona excludes 25% of net long-term capital gains from taxes. This means the state taxes long-term capital gains at an effective rate of 1.875% and short-term capital gains as ordinary income at 2.5%.
Documents required for selling an inherited property
Exactly which documents you need for selling an inherited home depend on how the property was inherited and if probate was necessary. For a detailed list of documents and tips on where to find them, see our complete guide to selling an inherited home.
Proof of inheritance documents prove you inherited the property and establish your right to sell it.
- Probate documents
- Letters of administration / letters testamentary
- Affidavit of heirship / court orders
- Transfer on Death Deed
- Power of attorney documents
Title and deed documents are always necessary to transfer a home to the buyer.
- Property title and deed
- Previous deeds and title transfer documents
- Title search / title insurance policy
Tax and mortgage documents prove to the buyer that all loans and tax bills have been paid.
- Property tax documents
- Estate tax returns
- Loan agreement
- Mortgage and loan payoff documents
At closing, you'll also need all of the necessary paperwork required in Arizona, such as the purchase agreement, required disclosures, and escrow and closing statements.
Should I sell my inherited property?
Selling your inherited property may be the right decision if:
- It's too expensive to keep. If the home has mortgage payments to be made, outstanding taxes, or a reverse mortgage, the home may prove to be more costly than it's worth.
- It's too expensive to maintain. Even if the mortgage is paid off, a home costs a lot of money to keep up. Here's how much the average Arizona homeowner spends per year on a home:
- Utilities: $5,362[8]
- Maintenance: $4,392[9]
- Homeowner's insurance: $1,403[10]
- Property taxes: $1,786[11]
- The home is in poor condition. If a home needs too many repairs just to make it liveable, you may be better off selling it as-is to a cash buyer in Arizona. Here are some common repair estimates for Arizona:[12]
- Siding replacement: $19,066
- Roof replacement: $28,703
- Bathroom remodel: $23,958
- Kitchen remodel: $26,586
You may want to hold onto your inherited property if:
- It's not a seller's market. If home values are down in your area, you may want to hold on to the home until the time is right.
- You want to make repairs. If you have the time, money, and know-how, flipping an inherited fixer-upper could turn out to be a lucrative investment.
- You want to reduce your tax burden. If you hold on to the home for at least a year, the profits on your sale may be taxed at a lower rate. If you make the property your primary residence for at least two years, you might be completely exempt from federal and state capital gains taxes.
How to sell an inherited property in Arizona
Your best option for selling an inherited property depends on the home's condition and how much—if any—money you want to invest in the property before selling.
Sell as-is to a cash buyer
Companies that buy houses for cash in Arizona can close quickly on a sale and buy homes in their current condition with no contingencies.
One downside to cash buyers is that they will likely offer you only 50% to 75% of a home's fair market value. However, it's a good option for settling an inheritance quickly to divide the proceeds among heirs.
⚡ Compare fair offers from cash home buyers near you! See what top cash buyers will pay, plus get an expert realtor's opinion on what your house is worth.
List with a real estate agent
A real estate agent is the best option for selling inherited homes in good condition. A local realtor can help you market your home and get the best price.
Listing with a realtor takes longer than selling to a cash buyer. In Arizona, the average home is on the market for 52 days before an offer is accepted. Listing a home for sale also requires more coordination with other heirs if the house is jointly owned: you'll have to agree on pricing, marketing strategy, and whether making improvements before selling is worth it.
Understanding inheritance laws in Arizona
Arizona is a community property state, meaning that each spouse legally owns half of the couple's total earnings while married, i.e. the community property. When one spouse dies, half of the estate goes to the surviving spouse and the rest can be distributed to beneficiaries.
However, a will could specify that a spouse is to receive more than half of the assets.
These assets are considered community property in Arizona:
- Income from employment
- Property acquired during the marriage
- Separate property a spouse shares with the other spouse
These assets are not considered community property in Arizona:
- Property acquired prior to marriage
- Inheritances or gifts
- Anything defined as separate from the marriage community under an agreement between the spouses
Intestate succession in Arizona
Dying intestate means dying without a valid will. Each state has its own laws to govern how the deceased person's property is to be distributed in the absence of a valid will.
In Arizona, if someone dies without a will, real estate passes to the legal heirs after the probate court has sorted out all claims and debts on the estate.
Here is how Arizona inheritance laws work depending on the surviving descendants:[13]
- For those with a spouse and no children: The spouse inherits the complete estate.
- For those with a spouse and shared children only: The spouse inherits the complete estate.
- For those with a spouse and children from multiple relationships: The spouse receives half of the separate property; children share the other half plus your community property portion.
- For those with children but no spouse: The children inherit the complete estate.
