Of all the things you can inherit, a family home is perhaps one of the most sentimental. It likely brings back many memories of cooking in the kitchen, playing in the yard or relaxing nights talking with family and friends. If you’ve recently suffered the loss of a loved one or friend and are designated to inherit their home, you likely don’t know what your new responsibilities will be.
Since an inheritance can be in probate for a long time, setting a short-term and long-term plan for your inherited home is a must. Whether you plan to keep the home or sell it, there are a lot of important decisions you’ll need to make along the way. Continue reading to find out what to do when you inherit a house.
What Can You Do With a House You Inherit?
Deciding what to do with an inheritance property is a decision only you and your family can make. You might encounter certain people who will strive to sway you one way or another — for example, a real estate agent may push you to sell because they foresee a quick sale with a high commission. However, whatever you decide should be in line with your and your family’s interests.
To help you prepare for this decision, we’ve compiled a quick breakdown of your options when you inherit a home.
1. Move In
When you inherit a home, you could, of course, move in. If you’re currently renting or interested in the prospect of moving, you can take advantage of the benefits of having a home ready for you to move in — no bidding wars or long searches for you. Being familiar with the home might also help you make the most informed decision, especially concerning its age and condition.
When you move into a home you inherit, you have a few options when it comes to assuming financial responsibilities. You can:
- Add your name to the mortgage and resume regular payments: Sometimes, you won’t even have to go through the lengthy credit check process.
- Continue mortgage payments without adding your name: With this option, the mortgage will not impact your credit score.
- Refinance the mortgage in your name: This option will mean new payments and interest rates, and you could potentially spread the remaining loan balance out longer to reduce your monthly payments.
- Pay off the mortgage: If you also earned a sum of cash in your inheritance, paying off the mortgage could be a great option if you plan to keep the home.
If you’re thinking of moving in after inheriting a house, keep in mind all the expenses that come with homeownership, including the cost of maintenance and upkeep. Inheriting a house from your parents or grandparents may seem great, but older homes can have underlying issues that might lead to expensive renovations. If possible, evaluate the home in person — or have a home inspection done — to determine if moving in is the best option.
2. Rent It Out
With the rental market booming and only expected to rise in the coming years, renting out an inherited property can be a great choice. You’ll have a few options for renting out the property:
- Full-time rental: With this option, you’ll rent full-time, likely using six months or year-long leases for your tenants. Full-time rentals provide a relatively stable income and can be a great option.
- Short-term rental: If you’d like to generate rental income without the long-term commitment of a year-long lease, you can offer month-to-month leases. This option may be lucrative if you live in an area with a university, where students and professors may only need accommodations for one semester.
- Vacation rental: Converting your inherited property into a vacation rental can generate good income, especially if you live in a city with a lot of tourism.
Additionally, if you do decide to rent, you can always change your mind and move in since you still own the property. You might decide renting out is a great choice to finish paying off the mortgage, and then you can move in without the burden of monthly payments.
3. Sell It
Selling your family home can be an emotional decision, but it could be the right call if you can’t afford the mortgage or live far away. If you pursue this option, you’ll still need to set a plan to cover the existing expenses while the house is being prepared and put up on the market.
For older homes, you might be able to get more money if you invest in repairs, such as modernizing the kitchen and bathrooms and enhancing the curb appeal with exterior work. Selling may be an emotional decision, but if it’s the right choice for your family, you can think about all the memories another family will make in that special place.
What Are the Financial and Legal Responsibilities of Inheriting a Home?
If a loved one has passed their home onto you in their will, it can be an incredible gift. However, that gift does come with responsibilities. Mortgages, insurance and taxes still remain connected to the home — if you have an inheritance property, that means these financial responsibilities fall to you.
Finding an immediate plan for paying the monthly payments on the home will be the most pressing concern in the short term. Meanwhile, you can think about a long-term plan to consider your larger obligations, such as:
- Insurance: You may be able to keep the current insurance if you make payments, or the insurer may require you to acquire your own policy.
- Mortgage: If you’re exploring moving in or renting the inherited property, you want to have a long-term plan in place as to who and how you will cover the mortgage. If you cannot keep up with the payments, you will run the risk of foreclosure, meaning you will not recover anything from the property.
- Other debts: Running a credit report on the former owner of the home can help you discover any loans on the property. As the new owner, you will be responsible for any outstanding contractor bills or second mortgages.
Do You Pay Taxes on a House You Inherited?
Another responsibility you acquire when you inherit a house is taxes. If you inherit a house, it is taxable. There are three main types of taxes you’ll want to look out for when you inherit a house:
- Property taxes: The amount you pay in property taxes will depend on where you live. If you keep or rent the house, you’ll want to check if the property taxes are included in the mortgage or if they are a separate payment.
- Estate taxes: The government holds the right to tax property doled out in inheritances — if your overall estate inheritance is over $12.06 million, you could be subject to taxes on your inheritance, including the cost of the home.
- Capital gains taxes: As an asset, you could face capital gains taxes on the profits from the sale of the home. However, when you inherit the home the value will reset, lowering your capital gains taxes. The capital gains tax exemption threshold is $250,000 for single people and $500,000 for married couples who file jointly.
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