A house is a great gift to be received from your loved ones, but inheriting it may not be a completely joyous occasion as inheriting a property is commonly associated with a family member’s death. Being entrusted with something quite valuable from family is a responsibility you have to take seriously.
What you should do next with the house you inherited can be confusing and stressful. You will have to make tough emotional and financial decisions for the problems associated with your inheritance. To understand better the options you can take, here are some of the things you should know first.
Am I the Sole Heir or Not
When you inherit a house from your parents, it is common to share ownership with other family members, such as your siblings. It is more common than the house’s heirs have different opinions on what they should do with it.
There are three (3) main options you can do with your inherited house: selling it, renting it to others, or moving into it. One of you may want to sell the house, the other wants to rent it to generate a long term income, and the other heir wants to move into it because of personal memories associated with the house.
You can buy the other stakeholders’ share so that you have sole ownership of the property, allowing you to do whatever you want with it. You can pay the full or via monthly instalment based on what you agree during a private arrangement. If everything else fails, you can always go to court, but it could be costly. Hence, it’s best to avoid it.
You can solve your conflict through proper communication to come up with one unified goal between each other.
Upon inheriting a house, you should know first about the financial and legal responsibilities accompanied by it, including debt obligations and tax liabilities. Emotional baggage is something you also have to consider, such as distributing sentimental things inside the house.
These responsibilities are related to each other and should be studied closely before deciding to sell, rent, or move into the house. Whatever your decision will severely impact how you will be taxed in the future.
You may be wondering if there is an inheritance tax you have to pay for your inherited property. Luckily, you don’t. You do not have to burden yourself in thinking that you have a tax liability upon receiving your inheritance. However, when you decide to sell or rent the house, you have the responsibility to pay taxes, such as property taxes and capital gains taxes.
It is advisable to consult a certified accountant to discuss the tax consequences, depending on what you decided to do with your property. Each option is different from each other that is why it is better to talk to a professional regarding the tax implications of your home.
When you inherit a house, you should know if you are also inheriting debt obligations due to an open mortgage. If yes, you have to identify what type of mortgage plan the house is, when it is due, and if it is assumable.
Most mortgages are assumable, meaning the heirs or the buyer (if you choose to sell) can take over the payment of the remaining balance according to the original terms. Although some loans like reverse mortgage force you to sell the house to pay the debt because they specifically state that the mortgage is due on sale or when the mortgage passes.
Repair and Maintenance
The house’s condition is another factor for you to consider before deciding what to do with your inherited property. Identify if the house is well-maintained and what type of repairs are needed. Choosing between a major or minor renovation should be inclined on what you have planned to do with the house.
There are three (3) options you can choose on what to do with your inherited house. They would be: selling the house, rent the house to other people, or you will move into your new home.
Sell the Inherited House
Selling the house is ideal, especially if there are multiple heirs, but the house should be in good condition to ensure a higher profit.
When you plan to sell the house, it is always smart to do a home inspection to find out the areas in your house that needed urgent repair and areas that would attract many potential buyers to your houses, such as the foundations, windows, and roofs. You can still sell the house without renovating first, but you have to lower its selling price.
This option has the most extensive tax implication by paying a capital gains tax, depending on how long you own the property. Once the house is sold, you relinquish all your legal rights and are free from its responsibilities.
Turn it into a Rental
Turning the house into a rental property is a wise decision if you have experience in real estate. This option is a compelling way of having a steady cash flow but being a landlord is not easy. You have to be familiar with the obligations of rental property and its responsibilities.
Renters care more about comfort than the long term condition of your house. It is wise to do minor renovations such as new paints and carpets. You can either turn the house into a long-term rental or vacation only rental.
Move into the House
Deciding on staying in the house ensures that you are now responsible for the property. Carefully think through if you can afford to live in the house, considering whether it has remaining debt balance, maintenance cost, insurance, and property tax.
However, if the property has no outstanding debt, it is good to keep it. Also, the tax you have to pay will only be property tax as the new owner.
It is easy to think that you can do whatever you want with it when you inherit a house, and nobody will bat an eye. Inheriting a house can be a blessing or a burden, depending on how well you manage it. You have to know everything there is to know about the house you inherited because all of those things will affect your decision to do about the property.