It’s expected that over the next few decades, $21 trillion will be passed on through inheritance payouts and a lot of that could include property values. It can be surprising to hear how often inheriting a house can happen. Keep in mind though that the rate of inheritance is different across the country.
The inheritance rate in the state of Pennsylvania is about 4.5% but realize that regardless of where you live, you could inherit property in different areas. While it could sound like a great thing to inherit a home, it will depend on whether you can afford the property. And there is quite a bit to know about what you would be liable for because unfortunately, inherited homes, even if they are paid off, aren’t always free in the long run.
It can be a scary proposition to inherit a house if you don’t know what would be in store for you and chances are you have a lot of questions about inheriting a home that you aren’t sure you can maintain in both price and upkeep.
Keep reading as we explain the entire process and what you need to know if you’re in this position.
If you inherit a home and don’t plan to keep it, you’ll need to sell it as soon as possible. However, the best thing to do as soon as you receive notice of getting the property is to make a short-term plan. This plan should account for what it will take to maintain the property while the estate is being settled.
If you have siblings, split the responsibilities if you can and decide if the property is feasible for everyone to keep up. Of course, you will need to determine if everyone inherited the property in equal shares or not. If you don’t have siblings, this won’t be of any concern.
Inheriting a house can be a tricky situation. If you already have a home with a mortgage and the home you inherit still consists of a mortgage, you need to consider if you can handle the payments or if you can pay it off right away. What’s most important is to consider what are known as “hidden housing costs”.
Don’t only think of maintenance and mortgage costs. Consider costs for appraisal, utilities, and property taxes, to name a few.
About 22% of households in the U.S. will have variations of wealth passed down. This means that there is still a good amount of properties expected to be passed down.
The first thing you’ll want to consider is taxes. You should know, inheriting a home doesn’t immediately make you responsible for handling the taxes associated with it. This does, however, depend on the state as every state’s laws around property inheritance are different.
There is no automatic tax liability. If you decide to proceed with taking on the property and you decide to use it, you will be responsible for taxes. This is where capital gains will come in which are any profits you make using the property as an investment.
However, if you sell the property right away, you won’t have to worry about these gains accruing. The good news is that the fair market value of the house at the time of death is usually subtracted from the inheritance tax. You can also use an alternative valuation date if the cost of the estate you inherit surpasses the exemption amount if you want to combat high taxes.
Maintenance costs, especially depending on the size of the home and whether it will be used as a primary property may deter some from keeping an inherited estate. The rule of thumb with this is that maintenance costs will come in anywhere between 1% and 4% of the value of the home. Depending on the total value of the home and the size, this could come out to thousands of dollars.
There are three primary ways that you could inherit property. Each option will have significantly different timelines for the inheritance to be finalized.
A probate inheritance might be more complicated and could take anywhere from 12 to 18 months for the settlement to process. The more beneficiaries and the more included in the estate will make the process more complicated.
If you received the property through a death deed this means that no approval is needed through a court system. The same applies to inheriting through a living trust. This would mean that the process could take significantly less time to distribute assets and you can either sell or advance on what you do with the property right away.
Now, if you inherited the property through a living trust, the process can be fast but most of the time it will take up to five to seven months or longer. It can also be a bit more expensive since remaining costs will need to be settled with current assets but this will fall on the issuer making it less likely you will have continuing payments and this is one upside.
Whether you keep the estate when you inherit a house will depend on what you think you can handle. To make it simpler, follow a few simple steps;
The best thing to do is to get expert guidance if you plan to sell. If you plan to keep the property, identify all capital gains and consider opening a shared estate account with any other heirs if there are any.
When inheriting a house, there are a lot of costs and expenses that go along with it. Depending on your situation, inheritance can be very generous and provide you with something valuable to you. However, it also comes with its costs as well as responsibilities.
Sometimes, selling the property is the best option when you want to sell fast, and working with First Choice Home Buyers is the best option to close on costs quickly with a highly-rated payout. To find out more about selling your home in the simplest way possible, get in touch with us today.