I Inherited a House. What Should I Do?
While inheriting a house is something that adds value and you should be happy about, you will later come to realize that making financial decisions associated with it can be difficult.
One thing to find out is if you have to pay tax on an inherited property. Although by just inheriting a house, you won’t begin paying taxes automatically, but you could incur taxes by what you do with it, either moving in or renting it out.
Since you inherited a property, you will benefit from a step-up tax basis, meaning that you will only be taxed on gains between when you inherit the home and when you sell it.
What you do with an inherited property depends on the physical condition and financial worth of it, together with any time constraints.
Mortgage on the property may influence how fast you want to sell it or even rent it. If the mortgage has a due-on-sale clause, then it means that you should pay the whole loan when the property is transferred by the borrower to someone else, especially a non-family member. If it is a reverse mortgage, then you that inherited the home often has six months or thereabout to repay the loan. There are other types of mortgage, and selling the home depends on the type.
Depending on the condition, an inherited home may need repair. This is why you should get the home inspected immediately you inherit it. If you want to sell it, then you need to carryout major repairs on places like furnaces, foundation, windows and roof to increase its value. When you wish to rent it out, then focus more on comfort and fix things like the carpet, and a new paint.
If you inherit the property with a family member or another stakeholder, then things might get a bit complicated. You can settle things here in many ways, either through a buyout, where one of you sell off the property to one that wants to keep it. You may not have the funds to buyout the property, so what you can do here is pen down a promissory note on how you intend paying half the home’s value. One option that is great especially if none of you wants to keep the property is to sell it and share the profits. You can also decide to rent it out and share the proceeds from the rent. What if you don’t agree on what should be done with the property? Then you’ll have to involve the court by filing a lawsuit for partition basically asking a judge to sell the home. This is not recommended since it will cost you much, and the profits after selling it will be very low.
Conclusion
If you inherit a property, you have three basic options, it is either you move in, rent it or sell it off. Whichever one you choose, it is important that you know the implications of your decision from different point of views such as the financial impact, and tax liability.
