Mortgage Insights Blog

Inheriting real estate can be one of the most painful ways to acquire property. You've lost a loved one and now you have to settle their estate. Unless you're the surviving spouse – in which case legal transfer of the property to you should occur relatively quickly and seamlessly and without tax penalties – receiving an inheritance can be a long and complicated process. It could take several weeks for the executor of the estate and the courts to divvy up the deceased's assets and property, including the home.

If you plan to sell the property make sure you read on to get a general idea about what to do next as inheriting property can be exceedingly confusing for the heirs.

Transferring the property. Getting legal advice should be your first step. Depending on where you live, the legal process will vary, but all states allow those who inherited property to have the property transferred from the previous owner's name to theirs. Sometimes a lawyer will be needed for this process and other times the clerk of courts office can guide you through the process. Since the property isn't being sold to those inheriting it, it's unlikely that there would be any transfer tax.

Transference of real-estate property can become exceedingly sticky when more than one beneficiary is named. Unless the will is very clear about the percentage of ownership each beneficiary receives or includes provisions about what will happen if one beneficiary wants to sell the home while the others do not, be prepared for disputes that may arise.

Meeting of the minds. After a death, most people are upset and not always able to think clearly about what they should do with the property. Some family members may want to keep it while others may want to sell the property right away and still others may think it should be sold after some time has passed. So if there are multiple heirs to the property then this is the time to have multiple round-table discussions to come together and try to have a meeting of the minds. Allow everyone to express their opinions and ideas about what should happen with the property. Depending on how different everyone's thoughts are, this could take several attempts to reach a decision. However, it's worth the time to try to determine who might want to keep the property and who wants to sell it immediately. Finding a viable solution for all could avoid a lawsuit that forces the sale of the property.

Check the condition of the property. Go to the house and see what condition the property is in. Sometimes inherited property can be badly run down and need a tremendous amount of work before it is ready to be sold. There are cases where those who inherited the property find they have inherited a huge mess that needs immediate attention. If immediate attention isn't necessary, before you dive into fixing up the home, consult with a real estate agent to see which improvement projects might help the home sell faster. Be sure to keep good records of any and all costs for improvements; this will be important when determining if capital gains and state taxes apply.

Get financially organized. Right away it is crucial to figure out if the mortgage has been paid and if there are any liens on the property. Some lenders treat the death of a borrower as a trigger for immediate repayment of the loan, however given the current climate of the market most lenders will not immediately accelerate the note as long as they continue to receive payments. And, if there are provisions for survivorship either through a trust or deed, then the loan will remain in effect.

Your legal advisor or even real estate professional can help you conduct a title search against the property to determine any and all possible liens that may be against the property. Also, check to make sure the property taxes and homeowner's insurance are current and paid until the property is sold or transferred to its new owner occupant.

Get the property appraised. It's very critical to get an accurate appraisal so everyone understands the value of the home. This helps the inherited parties to see how much they can expect to receive after the home is sold. Once the appraisal comes in, have another meeting to determine your low-end offer that will be accepted.

Taxing situations. Inheritance tax may be imposed on the transfer of assets, including real estate. The tax rate is dependent on the relationship between the descendent and the inheritor. Estate taxes, meanwhile, are imposed on the value of the property at death. The Federal government currently has an estate tax for estates in excess of $2 million dollars.

It's easier to sell the home after death as inherited property is taxed on the value of the property the day the owner died and therefore less capital-gains tax. If you are required to pay capital-gains you will be taxed on the difference between what you net from the sale and your taxable basis (the fair market value at time of inheritance plus improvements minus depreciation). Currently, the federal capital-gains tax is 15 percent.

Contact professionals to help. Inheriting a home or other property is an incredibly complex issue with ramifications that can vary from state to state. If you're due to inherit real estate, be sure to contact professional for advice on all areas of the inheritance.