This article is your comprehensive guide to understanding the complexities of selling a house from an inheritance. It examines what happens during and after the sale.
Continue reading to gain informative insights to move forward with clarity and confidence.
What Happens Before You Sell a House You Inherited?
Before selling an inherited house, you should determine whether probate is needed, the best time to sell (during or after probate), and how to reach a consensus with any co-heirs.
Addressing these critical issues will help ensure a smoother sale and satisfactory outcome for all involved.
Can the House Be Sold Without a Probate?
Probate is generally required to establish legal ownership before an inherited house is sold. However, if ownership transfers directly, one can sell their deceased parents’ house without probate.
Here are some examples of when an executor can sell property without probate:
- Jointly owned property: The house automatically passes to the co-owner(s) when jointly owned with survivor rights. That applies to joint tenancy, tenancy by the entirety, and community property with rights of survivorship. This way, selling a house when one owner is deceased is possible without probate. For example, imagine a wife selling a home with a deceased husband on deed.
- TOD deed: Many states let property owners use a transfer-on-death deed to name a beneficiary who becomes the new owner without going through probate.
- Small estate exemption: In some jurisdictions, ownership is transferred without full probate as long as the total estate is below a specific value set by state law.
- Living trust: The house, held in the trust and not part of the estate, passes to beneficiaries according to the trust’s terms, avoiding probate.
Can a House Be Sold During Probate?
Yes, you can sell a house during probate. It’s generally necessary to pay off debts, simplify the division of assets, or cover estate expenses such as legal fees or taxes.
Laws for taking this action vary from state to state. However, each state has a prescribed procedure for carrying out the sale.
Here is how long it takes to sell a house in probate.
However, there are issues that may delay or hinder selling a property during this procedure. It is important to understand when you can sell a house in probate and when you should not.
Are There Other Beneficiaries?
When you want to sell your deceased parents’ home left to you and other beneficiaries, you must get their approval before proceeding. For example, your sibling lives in jointly inherited house and won’t move out.
Each heir and beneficiary has a legal interest in the property, and selling it impacts their rights. So, if there is a dispute, the court will decide if the executor can sell estate property without getting approval from all beneficiaries.
What happens if not everyone agrees to sell? For example, what if you inherited your parents’ house, and one of your siblings wants to hold onto it?
A common approach to resolving this situation is buying out the sibling’s share in the inherited house, thereby gaining sole ownership.
This requires enough funds to initiate the buyout. If you don’t have them, you can take out a loan from specialized lenders to refinance an inherited property to buy out heirs.
Another method for resolving a dispute among co-beneficiaries about what to do with the house is a legal process called a partition action.
Any of the heirs can file this lawsuit. They do not need the consent of other co-owners to initiate the process.
The goal is to separate the legal interests of the co-owners into individual interests. The court often does this by ordering the sale of the property and distributing proceeds among co-owners.
What Happens During the Sale of a House You Inherited?
In this section, we explore different scenarios involved in selling an inherited property. The insights provided can help you better navigate the process and make well-informed decisions.
Selling a House During Probate
While you can sell heir property during probate proceedings, certain legal requirements and steps are involved.
The exact procedure can vary depending on the jurisdiction, but as a general rule, it involves:
- Naming a personal representative: The probate court appoints an executor (if there’s a will) or administrator (when there’s no will). That person handles the sale. This person is usually a close relative of the deceased and may be one of the beneficiaries.
- Property appraisal: A professional appraisal is crucial to ensuring the estate receives a fair price for the house, and the court usually requires it to approve the sale. Here’s how to determine the fair market value of inherited property.
- Petition to sell: The executor or administrator asks the court for permission to sell the house. The petition document details the reasons for selling and the asking price.
- Court authorization: The court reviews the petition to ensure it meets legal requirements and is in the best interest of the estate. In many cases, a hearing is held.
- Listing and marketing the property: Once the court gives the go-ahead, the house can be marketed. A licensed real estate agent is engaged to handle marketing professionally, ensuring the highest proceeds in order to respect all beneficiaries’ interests.
- Final court approval: After reviewing the offers received, the personal representative selects the best one for the estate and presents it to the court for approval.
- Closing and apportioning proceeds: The sale is finalized through closing. Any outstanding debts are settled, and the remaining funds are distributed to beneficiaries.
- Final accounting: The executor or administrator provides the court with final accounting of the property sale and proceeds distribution.
Selling a House Without or After Probate
When probate isn’t necessary, selling a bequeathed property can proceed without supervision of the court.
There’s no need for the additional legal actions listed in the probate procedure discussed above.
The Easiest Way to Sell an Inherited House
There exist real estate investment companies that seek out inherited houses to buy and add to their asset portfolio.
These businesses aim to purchase properties with investment potential, namely with an opportunity to repair them, adding to their market value. Then they either rent the properties out or resell them at a profit.
Selling to one of such companies is the easiest way to liquidate a property passed down to you, whether it’s in good shape or you inherited a house that needs work.
Benefits of Selling to a House Buying Company
1. Fast Transaction
‘We buy houses’ companies’ strength is closing fast, often within a few days. Their processes are optimized for a quick transaction, unlike a traditional real estate sale deal done via a realtor.
2. As Is Purchases
Sellers don’t need to make repairs or renovations before closing. That is particularly beneficial for older properties or if you inherited a hoarder’s house in disrepair.
3. Cash Deal
These companies pay cash, eliminating the wait for a lengthy mortgage approval process. With a cash offer, you will likely skip an official appraisal and perhaps even an inspection. No mortgage also means financing issues won’t jeopardize or prevent the deal.
4. Reduced Closing Costs
Cash buying companies often cover closing costs, which saves you some money.
5. No Sales Commission
Selling a house to an investment company can be done without a real estate agent. This eliminates the commission you would pay to both seller’s and buyer’ agents in a traditional transaction, which is about 6% of the selling price.
However, if the house is in probate, a listing agent is usually required, unless the court permits otherwise. Yet, the home buying company may skip using a buyer’s agent, which will still save you about 3% of the sales price.
Drawbacks of Selling to a House Buying Company
While cash buyers provide speed, convenience, and certainty in the deal, when selling an inherited house as is to one of them, you’ll likely get an offer that falls below market value.
If you consider the benefits mentioned above a worthwhile trade-off, get a cash offer from ‘we buy inherited homes fast’ companies.
And if you’re interested in exploring other options that might increase the offers you receive, you’ll want to read how to sell an inherited property to learn more about the alternatives.
What Happens After You Sell a House You Inherited?
There may be tax implications to address after you sell an inherited house. These obligations can impact the proceeds you receive from the sale.
Therefore, understanding the specific requirements at the federal and state levels will help you better manage your financial outcomes. It also helps ensure you comply with applicable laws.
Capital Gains Tax
If you make a profit, you may owe capital gains tax when selling inherited property.
The tax is a percentage of the difference between the house’s cost basis and its selling price. That basis is calculated by different rules for inherited houses than in other property sales.
The IRS lets you update the house’s value to what it’s worth when the person who previously owned it dies. So, you’re not taxed on the appreciation from the original purchase price.
That stepped-up basis can significantly reduce your tax liability when it’s time to report your income from the sale of your inherited property.
If you’re wondering, “how do I avoid capital gains tax on an inherited house?” there are a couple of strategies to consider:
- Live in the house as your primary residence for the necessary period to qualify for a partial exclusion of the gain from taxable income.
- Sell the house right away at fair market value or below it. There’s no gain to tax, as the sales price matches the stepped-up basis.
State Inheritance Tax
Currently, only a few states impose a tax on assets, such as a house, inherited from someone who dies.
The rates vary based on the state and the value of the house. The rate may also differ depending whether and how you’re related to the person who left the property to you.
In some states, immediate family members are exempted from paying this tax. There may also be thresholds, meaning only amounts above a specified value are taxable.
