Selling Inherited Property

Inheriting a property can be a bit overwhelming, especially if you and your family know you would like to get rid of it. In addition, people who inherit property aren’t typically aware of all aspects surrounding these types of inheritances, which can lead to surprises later down the road. Selling inherited property can become complicated, especially if there are multiple owners. However, if you know you’ll be inheriting a property or are helping a loved one inherit property, there are a few questions that can help you through the process:

selling inherited property

Can I sell inherited property?

Are there specific types of property that can be inherited?

Is there a certain time that I have to sell inherited property?

Can You Sell Inherited Property?

If you inherit property, you’re able to sell it. Though, there are certain conditions you should be aware of. If you want to sell it, keep in mind that the property can’t be sold until you’re the official owner after the probate process. The property will need to be maintained during the time the transfer is taking place, so you should continue paying utilities, tax bills, and keep up with general home maintenance.

When you begin selling inherited property, a few legal aspects need to be taken care of, one of which is dividing the decedent’s real and personal property according to their Will. In addition, in cases where more than one person is inheriting a specific piece of property, everyone will need to agree on what should happen to the property.

What Types Of Property Can Be Inherited?

Most real and personal property can be inherited. If your loved one had an estate plan, they may have an outline for how they would like their property to be distributed amongst their family. All of these belongings are classified as property.

When discussing selling inherited property, it typically refers to real property, like a home. However, other types of property can be inherited. For example, bank accounts, investment accounts, stocks or bonds, intellectual property, personal belongings, vehicles, and real estate.

When Can You Sell An Inherited Property?

You can sell inherited property once it’s officially transferred into your name and all potential ownership claims have been taken care of. However, if more than one person is named to receive a piece of property, each beneficiary must agree on how to proceed with the home. For example, one person may want to sell their share of the property, and others may want to keep their share. Now, if everyone agrees to sell the home and split the proceeds, everyone should start clearing out the property and begin finding a real estate agent for the home sale.

Sometimes, a home must be sold during the probate process to pay off any of the decedent’s debts. This is typically common when someone passes away without a Will and they don’t have enough money or other assets to cover their debts. So even if your loved one said they wanted to leave their home to you, you might not actually end up with it.

Can My Siblings Force The Sale Of Inherited Property?

Selling inherited property can be complicated if property ownership is divided between siblings. However, if a majority of the siblings wish to sell the property, or the property needs to be sold to cover debts, then the sale can begin through probate court action.

If the home is left to you and your siblings, then the first thing you will need to do is come to an agreement with your siblings regarding buying out the property or selling it. If you can’t come to an agreement, then you may need to take further court action.

Once the court approves the sale, the property can be listed. Then, once it’s sold, the proceeds from the sale can be split amongst all the beneficiaries.

If I Want To Sell Property That I Have Inherited, What Happens?

If you’re selling a property that you’ve inherited, it may trigger a taxable event. If you sell the home, you also may be charged for capital gains taxes. Capital gains taxes are applied to the difference between the property value at the time you inherit the property and the final sale price of the property. Below you will find more information about capital gains taxes.

Besides the financial issues with selling inherited property, there are also some responsibilities you should take on concerning the real estate transaction. Typically, the person who inherits the home is responsible for clearing out the home and removing any personal property. Be sure to leave time for yourself to take care of these issues.

Will I Be Taxed?

If you sell inherited property, the IRS may treat it as taxable if you make money on the sale of the home. As we previously discussed, this may trigger capital gains tax, and it will only be applied to the difference between the inherited value of the home and the final sale price of the home. Depending on your income bracket, you may have to pay more.

When inheriting a house, knowing the inherited value is important because the property value has likely gone up since the decedent first purchased the home. Since you’re receiving the home as a beneficiary, you won’t be taxed on the whole amount the home has risen in value. Instead, the IRS uses what is called a “stepped-up” basis to find out what the capital gains tax will be.

From there, the capital gains tax is applied based on how long you’ve owned the property. If you sell the home during the year you’ve inherited it, a short-term capital gain may be applied, which can range anywhere from 10% to 37%. If you’ve owned the property for more than one year, then a long-term capital gain may apply, which can range from 0% to 20%.

Are There Any Other Taxes Besides Capital Gains?

Yes, you pay taxes on the sale of property you’ve inherited. Besides capital gains taxes, you may also have to pay income tax on the inherited property if it was ever rented out when you owned the property. So, for example, if you’re in the process of deciding whether to sell the property or keep it, and you want to rent out the property in the meantime, you’ll have to pay taxes on any money you collect as rental income during that time period.

Can I Avoid Capital Gains Tax?

If your goal is to avoid paying capital gains taxes when selling your inherited property, you may want to consider making it your primary residence. If you’ve lived in the property for at least two years, you can avoid paying capital gains tax through the home sale tax exclusion. Some people may sell their current residence and move into the property they’ve inherited. However, this option may not work for everyone.

If you’ve inherited a home and sold it at a loss, then capital gains tax may be avoided. Of course, you shouldn’t do this on purpose, but a situation may arise where you may need to make a sale quickly. In some cases, you can use the loss from your sale to counteract other capital gains you may have made.

It is typically a good idea to work with a financial advisor when you inherit a property. This is usually the best option when you need to start making decisions related to taxes.

Get Expert Help When Selling Inherited Property

Inheriting a property can be a bit overwhelming, which can lead to a variety of reactions. When you receive any type of inheritance, you should be aware of any financial implications involved, especially if you’re inheriting any type of real estate.

Once probate comes to a close, you will need to decide if you want to sell or keep the inherited property. This decision might involve more than one person if multiple people inherited the property. If you decide to sell the property, you should meet with a financial adviser to discuss any potential tax implications. This is a good option if you want to make the most out of your inheritance.

If you decide to keep the property, you should consider the other financial aspects involved. For example, if you want to rent out the property, you’ll have to pay income taxes. No matter what you decide to do with the property, if you keep it, you should add it to your estate plan.

The process of selling inherited property can be challenging, so it’s best to hire an attorney and an experienced real estate agent to help you with the process.

At Rochester Law Center, our compassionate and dedicated Michigan Probate Lawyers are experienced in all matters of probate administration and serve every county in the state of Michigan.

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