Inheriting a property is a very overwhelming experience especially after the passing of a loved one. If you are an heir, would you have the slightest idea what to do? Naturally, there will be many questions on your mind. So, we’re here to help you know the things you need to do when you inherit a property.
Investigate the mortgage
It is possible that the house you just inherited is already fully-paid. But sometimes, it might just not be the case. When you inherit a property, you need to know its mortgage status. If you plan to live in the house or want to have it rented out, then you need to pay it off yourself. You need to speak with the lenders and arrange a new payment scheme if the present one does not fit your budget. Also, know that there is a Garn-St. Germain law that prohibits lenders from enforcing a due-on-sale on inherited properties. Lastly, it is best to consult a real estate attorney to guide you on the best action to take.
What are the taxes?
There are many taxes on properties and these can differ depending on which state the inherited property is located. Only 6 states collect inheritance taxes namely Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. In these states, a spouse who inherits property is also exempt from paying inheritance taxes. Furthermore, Nebraska and Pennsylvania are the only states that collect on properties passed on to children or grandchildren.
Do not confuse estate tax with inheritance tax because an estate is the overall asset of the deceased. Unless your inherited property and other assets are worth more than $5.34 million, then you won’t have to pay for this.
You pay income tax if you inherited a property that is being used to generate income. An example is if the property is being rented out or if that’s what you are planning to do with it.
Capital Gains Tax
You will only be paying capital gains tax if you decide to sell your inherited property. This is based on the amount you are selling the property compared to its current market value.
A property tax is a kind of tax that is paid as long as you are the owner of the property. So when you are an heir, it is best to pay immediately to avoid lapses and keep the property updated.
There are certainly many things that have to be thought about thoroughly regarding an inherited property. But you should keep in mind that time is precious and you should act immediately. Know how much time you will need to decide what to do with the property. Ask how soon you have to pay the taxes and mortgages to avoid getting penalties and repossession. Acting fast will save a lot of time and money and can even help you save your property.
What to do with the property?
According to Forbes, there are three basic things you can do with your inherited property and these are to sell it, rent it out or move in it.
Selling your inherited property is ideal if you don’t have the money to finance the taxes, the mortgages, and the maintenance. Also, if this is just an extra home to you, then this is the best thing to do.
Another great idea for your inherited property is to rent it out and generate income out of it especially if it’s an investment property. This can help you gain money for any expenses that the home requires.
Of course, you have the option to move into your inherited property and this is the best thing to do you’ve got no other place to live in. Most inherited homes are from parents so most heirs wouldn’t feel indifferent when they move in it.
Sometimes, inheriting a property can feel more of a burden if you have don’t have the slightest idea what to do with it. Just remember to take things a step at a time and ask the questions that you have in mind. Act wisely and consult a credible real estate agent if you decide to sell your property.