Everything You Need to Know When You Inherit a Property
Did you just inherit a house or commercial property? Inheriting property without having to make any mortgage payments or grueling property tax payments is nothing short of winning the lottery. But before you get overly excited, it’s important to prepare yourself for a wide range of mind-boggling legal and financial conundrums.
In this article, we will walk you through some of the aspects that most probate property owners and inheritors tend to be unaware of, alongside mapping out your prospects about the sale and profitability of the property.
Here’s everything you need to know:
What are your options?
You’re likely overwhelmed with emotions and memories when you’re the inheritor of a loved one’s property, but keep in mind that the property might come with pending bills and existing debt payments. Eventually, you will have to make the tough decisions when exploring your options of selling, renting, or moving into your inherited home.
If you are currently renting, moving into the inherited home may be the best idea. The situation can get complicated if the house is not vacant and is occupied by other relatives, however. If you share the inheritance with two or three other people, it can be extremely challenging to decide what to do with the property, and moving in also becomes complicated.
If you intend to make money off of the inherited property, you have two simple options: sell the property or rent it out. Given the extensive potential for opening up a passive income stream and the increasing potential of Airbnb rentals, it is highly advisable to rent out the entire property, or even offer various parts of the house to different tenants.
However, if you have more than one partner sharing the inheritance, selling it out and sharing the profits may be your best option. If the property is in debt or requires you to make outstanding payments, selling is usually the best option.
Tax Evasions & Payments
Most inherited property owners are unfortunately unaware of the massive tax breaks they can enjoy when selling their property. If you sell the inherited property, you will not be required to pay a capital gains tax, regardless of any appreciation of the property since it was purchased. This will allow you to receive a tax-free profit, and the tax payments sellers typically owe will be yours to spend or save, at your discretion.
However, keep in mind that you might be required to pay some other significant tax payments. Estate taxes are a tax payments that can be incurred if the property consists of more than $5.43 million in assets. This tax payment tends to vary on the basis of the state where you have inherited the property.
The estate taxes in Oregon and Massachusetts are incurred on estates valued at over $1 million, while estate taxes in New Jersey are levied upon estates worth more than $675,000. New Jersey residents are also subjected to an inheritance tax.
How “free” is the Inherited Property?
Even though your inherited property has come to you for free, it still likely has its own expenses. For instance, if the house has a mortgage, the estate can be used to clear the debt. However, owning a home is always expensive, even if you don’t have to worry about clearing debts.
Prepare yourself to pay homeowner’s insurance, liability insurance, and property taxes, alongside the expenses of general maintenance and upkeep, heating, electricity and other day-to-day costs.
Inherited Properties come with Baggage
Inherited properties come with a wide range of financial and emotional challenges, starting with the arduous task of dealing with the physical belongings of the deceased, which include the furniture, fixtures, appliances, household belongings, clothing and more. If the property has been inherited from your parents, you and your siblings will have to deal with the emotions of divvying up items that hold sentimental value. Dividing such items can create challenging situations amongst family members.
If you are preparing the house for sale or rent, you will have to undergo the emotional ordeal of moving all the personal belongings and items of your loved ones. If you have recently handled the passing of your parents, selling or renting the inherited property can quickly become a difficult ordeal, and often, many people with inherited houses tend to avoid clearing out to sell the property.
It is important to prepare yourself to handle the emotional difficulties and stress to avoid the long-term consequences of inaction. If you are not selling off the property and not living in it, the insurance and maintenance costs will only increase in the long run, which will only add to your emotional stress by increasing your financial obligations.