If you have recently inherited a home from a deceased loved one, you are faced with some tough choices of how to sell an inherited house while still facing the emotional process of grief and loss. This is certainly not the easiest of tasks and possibly could feel very unwanted with the recent passing of the previous owner.
Fortunately, there are professionals that will help ease and guide you through the process. A trusted estate attorney will be an absolute asset in working through the process. If you know you are intending to sell an inherited house, there are some important bits of tax law to understand while you prepare a home for the market.
Home Sale Tax Exclusion
Many are familiar with tax law if you are currently a homeowner or have previously sold a personal property. Tax law provides homeowners a tax exclusion of up to $250,000 on any gains received from a sale if the property is used as the main home for 2 of the previous 5 years. Notably, a married couple filing jointly can receive an exclusion of up to $500,000. The important part is that a home has to be your personal residence for at least 2 years before being eligible for this type of tax exclusion. Considering you just inherited the home, you will not qualify and there are a fair amount of costs in maintaining a property, especially one you do not intend to live in or that may be miles and miles away from you.
There is good news.
Stepped-Up Basis Rules
There is something called the “basis,” or an asset’s cost for tax purposes. The basis of a home = its cost, plus any improvements you make while you own it. When you inherit a home, you automatically receive a stepped-up basis. Because of the price difference from when it was first purchased, this will change the basis as most properties appreciate in value over time.
The basis becomes the home’s fair market value at the date of the previous owner’s death. This means that you would pay capital gains tax based only on the value of the property as of the date of the death. So let’s say the previous owner’s basis was a total of $150,000, but the house appraised after the death for $450,000. The house then sold for $455,000. The taxable gain is then $5,000.
You can determine a profit or loss by subtracting the basis from the sales price. When you sell a house for more than the stepped-up basis, you have a capital gain. When you sell the property for less than the stepped-up basis, it is considered a capital loss. If you don’t use the home as your personal residence, the capital loss is deducted, but only a maximum of $3,000 of such losses are deducted against your ordinary income per year. The rest must be carried over to the following years and deducted.
Because there are such tax laws involved in selling an inherited house, it would always be best to consult a professional adviser when determining how to move forward with a sale or how to manage the property and assets of the inheritance.
Sell to an Investor
When you inherit a home, the responsibility that comes after may not be worth all the hassle. Depending on how much work the property needs, you may even make as much as you would by selling with a realtor. The difference is the hassle is much less. Fixing the property up, waiting for the right buyer to come along, paying commissions and closing costs, having friends and neighbors walking through the house while it’s on the market, are all obligations you as a seller do not have to worry about with us.
We have helped many individuals wipe their hands clean of having to sell or maintain an inherited home by selling the property to us for market value. Priority Property Solutions wants to make a difference by offering cash within two days to anyone looking to sell a property without any repairs or obligations on their end. To get a no obligation cash offer, contact us here. To learn more about the process, watch our video here.