What Happens After You Inherit a Home?

Learn More About The Process After Inheriting a Home or Property!

 

Receiving a generous gift from a loved one, such as the inheritance of a home or property, can be an emotional time. You might be surprised to learn that there is a lot more to inheriting a property than just acquiring the home itself. There are several considerations to take into account when  handling this type of inheritance, such as deciding whether to keep or sell the home, how a possible mortgage or taxes will come into play, and even how this may affect your family and relationships.

 

While the inheritance of a home can come unexpectedly, it is important to do your research so that you can handle the transaction to the best of your ability. If you’ve recently inherited a property, continue reading to learn more about what decisions you may need to make in the coming months.

 

Inheritance Options

Once you’ve inherited a home, you will have a few options when it comes to deciding what to do with the property. In most cases, you will have the choice between moving in, selling the home, or making it an investment property by renting it out. If there are multiple heirs to the inheritance, this may become more complicated. You will need to work together to find what is best for each of you. It is important to make sure that the home is being properly maintained in the time that it takes you to make your decision so that potential loss or damage can be prevented. Something else to consider is the time frame for which the home will be unoccupied as this may determine whether losses are covered should you need to place an insurance claim. 

 

The Tax Implications

How taxes will be applied will depend on what you choose to do with the home.

It’s important to know that while there is no federal inheritance tax, there may be state taxes applied depending on where you live and how much the property you inherit is worth. For most people, just inheriting a property will not trigger an immediate tax liability.

 

If you decide to sell the home, and there is a profit on the sale, you could be held responsible for paying short-term or long-term capital gains tax. This will depend on how long the property was in your possession before sale. Capital gain taxes are federal taxes on the profits gained from the sale of an asset. Short-term capital gains taxes typically apply on the sale of an asset that has been owned for up to a year. Beyond that, long-term capital gains taxes would be applied.

 

Something to be aware of going forward is that you may be subject to a real estate tax reassessment. When a home changes hands, it may be reassessed to find it’s updated worth. In some states, if you are a child or grandchild of the previous owner, you can be exempt from the property reassessment, however if you are a niece or nephew, you may be expected to pay property taxes on the reassessed value.

 

If you have recently inherited a home, you might consider consulting with an experienced financial advisor before deciding on a course of action.

 

The Stuff

One thing that can often be a point of stress or contention is the distribution of possessions that are inside the home you inherited. If there are multiple heirs to the inheritance or even just multiple family members involved, deciding where, or to whom, sentimental items will go may cause distress. This can be an overwhelming process, which is why in many cases a home may sit empty for long periods of time. Although this can be a delicate affair, it’s important to remember that leaving the home unoccupied for too long may lead to damage on the property going unnoticed, potentially causing issues with your insurance coverage.

 

The Cost of A “Free” Home 

Although the property may have come to you with no initial costs, there are still expenses to consider when deciding what you would like to do with the home. Generally speaking, someone who inherits a property that’s subject to a mortgage, will inherit the mortgage as well. Oftentimes the new owner can simply take over the old mortgage, pending mortgagee approval. Depending on  the previous owner’s financial situation, an estate may settle the remainder of an existing mortgage.  If not, you would be responsible to pay the mortgage, in addition to the costs associated with property taxes, insurance, utilities and maintenance.  Again, this can become complicated if there are multiple heirs involved. It is best to consult an experienced financial advisor as well as a lawyer before signing any paperwork.

 

You will also want to assess the property to see whether or not there are any prominent liability risks. Consider the cost of repairing any damages and maintaining the home for occupancy or for sale during the decision making process.

 

It is important to take into account the current level of insurance coverage you have on your inherited home as well. For more information about home insurance and policy discounts with NYCM Insurance, contact one of our local agents by clicking the link below!