Wednesday, July 20, 2022 / by Cindy Bunch
Inheriting a house that is paid off | Timeline, Probate, and Taxes
So, you inherited a house from a family member and ….. now what?.
First, give yourself time to grieve and process the loss of your loved one on your terms. This can be an emotionally taxing time. If you’re inheriting the house that could also mean funeral arrangements fall to you as well and that can be lot to deal with on top of processing your grief.
Second, I’m going to answer some of the most common questions of what to do when you inherit a house. I’m Cindy Bunch and I’ve been a Realtor in the North Metro Atlanta area for over 20 years and I have helped a lot of people in your exact situation.
So, I’m going to address the real estate side of things. That said, every situation is different with its own challenges, so you should also seek counsel from an attorney for appropriate legal guidance. I am not an attorney and the purpose of this video is to share my experience in real estate, so none of what I am about to say should be considered legal advice.
Typically, the very first thing you want to do is make a plan for taking care of the property. Settling the estate can take a while and you DO NOT want to let the home fall into disrepair or behind on any expenses of the property. That will cause so much more stress later!
Items to plan for:
Insurance - update the policy if needed and keep up with payments
Mortgage (if there is one) - continue making payments
Next, What is probate?
Probate is the legal process of validating a will and determining inheritors. The existence of a will makes this process simpler, and sometimes faster. Without a valid will, the probate process includes distributing assets according to state laws.
The more complex or contested the estate is, the more time it will take to settle and distribute assets such as a house. Be prepared that the probate process can take a long time and potentially be expensive.
Once ownership is determined, you have a few options as to what to do with the house:
You can buy-out siblings or other heirs. If there’s a mortgage, check with the existing lender for options to add your name and assume responsibility for payments or, what is more commonly done, pay off the mortgage or refinance in your name.
Rent It Out
Whether you are local or out of state, consider hiring a property management company. You may find long-term tenants or make it a vacation rental. Be sure to plan for and repairs or updates that may be needed to make it rentable. Consult local ordinances for rules and regulations on renting options for the property and consult a tax advisor for changes to your tax implications.
Selling the property is what we most often see done and may be the best option if keeping it doesn’t make financial sense or upkeep isn’t feasible. Similar to your renting option, plan for any repairs or updates that may be needed to make it sellable. Get your free home estimate to get an idea of the value of the home. Options for selling and marketing the home to sell is no different than promoting your own primary home's listing. The same tips to prepare your home to sell apply!
What about taxes?
First, if the total of all inherited assets exceeds $12 million, it will be subject to Federal Estate Tax. In 2022, this ranges from 18 to 40%. Here in Georgia, there are no state-level special taxes for estates or inheritances. If you have any questions on this, it’s best to reach out to your tax advisor.
The tax that more commonly impacts inherited homes is the capital gains tax. If you decide to sell, your profits may be subject to this tax. Luckily, the fair market value of a home resets upon the owner’s death and you don’t have to pay taxes based on what was originally paid for the home.
So for example, if mom and dad bought their homestead back in 1964 for $50,000, it’s now worth $450,000, and you sell it for $475,000, your taxable gains are $25,000 not $425,000.
It may be uncomfortable, but one of the best ways to handle an inherited house is to discuss plans with the homeowner while they are alive. Work with an attorney to create a valid will, or set up a trust, or other options proposed by your attorney. There are several options for you to make inheritance a less stressful experience.
What other questions do you have about inheriting a home? If this is something you are currently experiencing or want to plan for in the future, contact the Bunch Team to support you in this process.
This article is brought to you by Cindy Bunch, Realtor with the Bunch Team Realty Group at Keller Williams Atlanta Partners. Learn more about our team and reach out to us anytime to help with your real estate goals.