When you inherit real estate, all heirs must work together to decide what to do with it. You may want to sell it, but another sibling may not be ready to part with it. The answers to these FAQs give you guidance on how to proceed by answering the most common questions you may have.
Deciding how to divide inherited real estate isn’t just a matter of preference, it’s also legally complex. Inherited property has different requirements, especially if there is more than one heir to the property.
A little research can go a long way in helping you decide the best way to proceed. And when you’re ready to sell the property connect with a real estate agent so you can get a great price for the house.
Here’s a look at some of the most common questions regarding inherited real estate and what you need to expect from the process.
1. What’s the best way to divide inherited real estate?
The executor of the estate will have the responsibility of distributing assets according to the terms of the will. For example, if the will states that each heir receives an equal part of a property, the executor will sell the house and split the profits equally between each heir.
Sometimes, heirs will receive different weights in the will. For example, the executor might receive 40% while the other two heirs each get 30%. The heirs will receive their allocation based on what’s left after expenses, such as final bills, real estate agent fees, and maintenance.
Dividing shared property isn’t easy, especially if some heirs want to sell while others want to keep the property for personal use. If there are disagreements about how to split a property, it’s in each heir’s best interest to seek professional legal counsel. Laws can vary by state, and a local legal expert is your best resource to seeking accurate resolution.
2. How do you pay taxes on inherited property?
Special tax rules apply to inherited properties, and you won’t qualify for the typical tax exclusion that homeowners receive. However, you may end up paying no taxes on your profit, thanks to the stepped-up basis rule.
The basis is the asset value for tax purposes. For example, your local tax assessor’s office may value the home at $150,000, which would be your basis. But when the owner dies, the property automatically gets a stepped-up basis, which is the fair market value of the home at the time of the owner’s death. This is typically more than the original basis.
Here’s a quick example:
The homeowner bought the home for $100,000 and made $50,000 worth of improvements during the course of ownership, which brings the tax basis to $150,000. When the owner dies, the home’s stepped-up basis is now a fair market value of $300,000. Let’s say you sell the home for $290,000. You’ve actually incurred a loss of $10,000, and $3,000 of this can be deducted from your taxes (the rest will carry over to future years).
Now, let’s say you sell the home for $310,000. You’ve made $10,000 in profit, which will be subject to capital gains tax.
3. Can majority rule when dividing inherited real estate?
Though it seems fair and logical, majority doesn’t always rule when splitting inherited property. The executor is in control of how the will is carried out and will usually have the final word on how to split real estate assets.
However, different states may have different requirements for inherited properties. The court may ultimately decide how a probate case will proceed.
A Clever Partner Agent will help you navigate the probate process.
4. Can you sell an inherited property without probate?
In some cases, you can sell a house without going through probate. If the homeowner put the home in a living trust or put an heir on the deed as an owner, the home will not need to go through probate.
5. Do you need a realtor to sell inherited property?
While you can technically sell a home without the help of a real estate agent, it’s not a good idea. Selling an inherited property is more complicated than the typical home sale and requires unique expertise and attention.
Working with a real estate agent that’s experienced in probate and inherited properties will give you the best experience, both in overcoming the legal obstacles and with the home sale at large.
Find an Experienced Real Estate Agent with Clever
Dividing inherited real estate can be a lengthy, complicated transaction. To gain a better understanding of how it works and to protect the interests of every heir involved, it pays to work with a real estate agent who’s experienced in selling inherited properties.
Clever Partner Agents are top-rated, full-service real estate agents in their local markets with experience in unique transactions, such as dividing an inherited property. Your agent can not only help you navigate the legal hurdles, but also help you save money when it’s time to sell.
Partner Agents work for a flat rate commission instead of the traditional 3%, so every heir can earn more from the home sale.
Connect with Clever today for a no-obligation consultation and let us introduce you to a local Partner Agent who can help you simplify the process of dividing inherited property for an optimal outcome.