If you have recently lost a relative or a close friend, you know that there's a lot that has to be taken care of in the weeks immediately following their death. From taking care of immediate expenses to coordinating the funeral arrangements, you have a lot on your mind. When it comes time to manage the estate of the individual, you might be surprised when you find out that you have inherited property from this person.
Now that you know you will be inheriting this property, you may have a lot more questions. Here's some of the most frequently asked questions about inherited property:
I've inherited property. Now what do I do?
Finding out that you have inherited property is an exciting prospect, but it's important that you make a thoughtful decision about what you are going to do next. Most people who inherit property either sell it, live in it or rent it out in order to generate income from the home. Your decision will likely be dependent on the type of property you inherited and the location of the property.
What is the basis in my property?
The basis in your property will determine whether or not you need to pay taxes on the property that you have inherited. The basis of the property will be determined based on its Fair Market Value, or FMV, at the time of the individual's death. The only time that FMV is not determined by the date of the individual's death is if the individual filled out a form prior to their death establishing a different date of valuation for the property.
What taxes will I be responsible for?
For the most part, the taxes that you have to pay on inherited property will be determined by the state that you live in. Unless you inherit a property that is worth more than $11.8 million, then you do not have to pay federal estate taxes.
If I sell the property, is it subject to capital gains taxes?
The average person who inherits property does not have to worry about paying capital gains taxes. This is because of step-up tax provisions. Essentially, if you inherit your childhood home from your parents upon their death, you would not have to pay capital gains taxes on the appreciation of its value if you sold it right away. If you waited a year or two to sell it, you would only have to pay capital gains taxes on the value that appreciated between the time you inherited it and the time that you sold it.
I have inherited a home with an existing morgage. What are my options?
If you have inherited a property that still had a mortgage on it, then you have several options available to you:
- Continue to pay the mortgage as scheduled. The only time that this is not possible is when there is a due-on-sale clause attached to the existing mortgage.
- Sell the home in order to cover the cost of the existing mortgage. You may be able to short sale the home if your inherited property is under water.
- Use cash from the estate to pay off the mortgage.
I have inherited a home with no mortgage. What other costs will I be responsible for?
Inheriting a home without a mortgage sounds like a relief and a blessing, but you will still be responsible for maintaining the home. This requires you to pay for utilities, home repairs and property taxes. You should consider these additional costs before making the final decision about what you want to do with your newly acquired property.
My siblings want to live in the property? I want to sell it. How do we handle this dispute?
This is a common disagreement among siblings who inherit a property jointly from their parents. If you cannot come to an agreement, you may need to hire a lawyer to either sell your share of the property to your siblings or to file a lawsuit to force the sale of the home to a third party.
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