What Happens When you Inherit a House?
When you inherit a house, there are a lot of things to think about. What do you do with the property? Do you keep it, sell it, or rent it out? What if there are siblings involved? And what if there is a mortgage on the property? Here are some important questions to ask and steps to take if you’ve inherited a piece of property and aren’t sure where to start.
I inherited a house, now what?
Inheriting a property can sometimes feel like a blessing (and other times feel like a curse). There are many things to consider such as the tax implications of inheriting a house, refinancing the inherited property, and what steps you need to take in order to make sure you've handled all the logistics of inheriting a property. Here are some major questions to consider when you first inherit a house:
- Is there a mortgage on the home? If so, what type of mortgage is it? Can you afford the mortgage if you intend to keep the property? Are there liens on the home? (You'll want to know if there are liens on the property, such as a home equity loan on the inherited property.) Are you interested in refinancing the inherited property?
- Are you inheriting a house full of stuff? Were any of the items in the home willed to other people? Have you chatted with the executor of the estate about the items in the home and what you're to do with them? Do any of these items need to be sold to pay off debts?
- Does the home need repairs? If so, what's the extent of the damage and how much will the repairs cost? What kind of repairs are needed and are they necessary?
- Are you the sole owner of the property or are there multiple stakeholders? Is there one sibling interested in purchasing the property outright? Are you comfortable selling the inherited property back to the family?
- Would you like to sell the home? Rent it? Live in it? What would that look like?
These are some of the major questions you'll want to ask yourself and have an answer to after you inherit a piece of property. Answering these foundational questions can help you create a plan for what your next steps will be.
Once you have a baseline for where you'd like to go, you should take the following steps:
- Talk to the executor. Talking to the executor is important as it'll help you figure out if you're the sole-inheritor, what kind of information they need from you, what kind of debts or mortgages are associated with the home, and they can help assist you with locating and keeping up payment on utilities.
- Talk to other inheritors. If you are not the sole-inheritor of the property and are co-owning it with other inheritors, you'll want to talk with them to see what their initial plans are for the property.
- Get the house appraised. Getting the house appraised will help you understand the cash value of the home and will likely influence your decision on whether you keep or sell the home.
- Evaluate debts owed. You'll need to understand the total value of the home and the total value of the debts to figure out how much profit can be made if you were to sell the property. Identify any liens and outstanding debts against the property to make sure you have a clear picture.
- Chat with a professional. It's likely worth reaching out to a tax lawyer, an estate lawyer, a real estate agent and other industry professionals to determine what the best path for you to take is.
Handle tasks with our checklist
What are my options if I inherit a house?
If you inherit a house with a mortgage, you have a few options you can pursue:
- Sell the house. If you're thinking to yourself "I inherited a house and want to sell it," you're not alone. Plenty of folks who inherit a home plan on selling the property instead of keeping it. You can sell the property in order to pay off the mortgage and keep the rest of the profit for yourself.
- Keep the home and pay off the mortgage. Keeping the home is an option and you can use other assets to pay off the rest of the mortgage.
- Take over the loan and put it in your name. If you'd like to put the loan in your name, you can contact the loan servicer and let them know that the original owner has passed away.
- Make payments on the loan as it is. Consumer Financial Protection Bureau lets lenders name an heir on a loan as a borrower without making the borrower go through the typical approval process.
How do you handle inheriting a house with siblings?
When you inherit a home, here are the typical options you'll have in terms of splitting the home with siblings:
- Sell the home. This is often the easiest solution as the proceeds can be divided equally amongst siblings or divided according to the percentages that are laid out in the trust or will.
- Rent the home. Another option that can be equally split (or split based on percentages laid out in the will) is to rent the home out. This is a great option for those that aren't ready to sell the home or would like to continue to gain funds from the home instead of selling it outright.
- Sell the home to one sibling. It's possible that one of the siblings wants to live in the home more than the other siblings. If one sibling wants to keep the home and the others don't, the sibling can offer to purchase the home from the other siblings or to buy out their stake in the property itself.
- Share the home equally. If you and the other siblings want to share the home and live in it, there are a few arrangements that can work. You can split the property up and have only one sibling live in the property depending on the time of year (for example, one sibling gets it as a summer home, another gets it as a winter home). You can have a few siblings move into the home and share it. You can also come up with a payment plan if one sibling wants to purchase the property and buy out the other siblings but don't have the funds to do this.
- Partition lawsuit. If you're unable to come to an agreement on how to handle the inherited property with siblings, you may be forced to pursue resolution in the courts. A partition lawsuit is when multiple people have ownership over a piece of property but can't agree on how to handle the property.
Inheriting a home can be stressful and can become even more complicated when you inherit a house alongside other siblings. If you inherit a home with your siblings, what happens next? What if someone wants to sell it? What if someone else wants to keep it? Here are some questions to ask yourself and your siblings about what to do with the property if you find yourself in this position:
- How do we want to divide the property?
- How will decisions be made about what to do with the home?
- Will everyone be able to live in the home, or is it only for certain family members?
- Who will be responsible for paying the taxes and upkeep on the home?
- What happens if someone wants to sell?
- How do we handle disagreements among siblings?
- What happens when someone can't continue paying?
- Is it okay for one sibling to pay less than others, if they can't afford the price set by everyone else?
Do you pay taxes on an inherited house?
Typically, there is no immediate tax liability when you inherit a piece of property. However, while there is no federal inheritance tax, there are some states that do have inheritance taxes. You'll need to check with your state's tax rules to make sure that you don't owe any inheritance taxes on the property and to see what type of standard property taxes apply.
How to report sale of inherited property on tax return
If the sale of the inherited property is taxable, you'll typically need to report this sale on Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets, according to the IRS. You should read over the IRS's guide on Capital Gains and Losses for more information and consult a tax authority to ensure you're following your state's inheritance rules.
Figuring out how to handle an inherited piece of property is one of many tasks you may be faced with handling after someone passes away. Use our free checklist to make sure you’re getting everything done after someone passes away.
