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Your Guide for Inheriting Real Estate | Highlands Realty Inc

Have you recently inherited a house? While it’s a generous gift from a loved one, it’s likely due to their death. Therefore, you’ll have a lot of emotions on top of the stress of the financial decisions surrounding an inherited property. When inheriting real estate, consulting an attorney is essential to completely understand and help you navigate the tax and legal requirements.

If you’re wondering what happens after you inherit a house, keep reading to learn about the three options for property inheritance. 

Questions to Answer When Inheriting a House

Before deciding what to do with an inherited property, you should answer the following. 

  • Are other family members or siblings also stakeholders in the inherited property?
  • Is there a mortgage on the property?
  • Are there any repairs needed to the home?

Regardless of what you choose to do with an inherited house, it’s important to understand your decision’s financial impacts and tax liabilities. 

1) Sell Your Inherited Property

Selling an inherited house is common, especially for heirs who may not live near where the property inherited is located. Depending on your tax bracket, you will pay capital gains taxes on the difference between the market value of the home on the inherited date and the sales price. Therefore, selling the property right away will help you avoid capital gains tax. In addition to the capital gain taxes, you’ll be responsible for any costs related to listing the property for sale. Some expenses include real estate commissions, necessary repairs, staging, and closing costs.

Are you interested in getting a property evaluation of a home you inherited? Contact our professionals for a free market analysis to help you decide if you should sell. 

2) Move into an Inherited House

Moving into an inherited property may be a good option for those ready to make a move from their current home or who have been actively searching for a place to purchase. In Tennessee and Virginia, there are no longer inheritance taxes. Therefore, you will not pay additional taxes due to inheriting a house and will only be responsible for the yearly taxes as the new property owner. 

Your yearly property taxes are just one of the expenses to expect when moving into an inherited home. Even if the property is paid off and you do not have to worry about a mortgage payment, there are other homeownership expenses that you’ll need to cover. These include routine maintenance and repairs, HOA fees (if applicable) and any unexpected costs that may come with being a homeowner. 

3) Turn an Inherited House into a Rental

Whether it’s your first endeavor as a landlord or adding to your rental portfolio, turning an inherited house into a rental is different from typical home investments. As mentioned above, there is no inheritance tax in Virginia or Tennessee. However, you should consider other financial impacts, such as preparing the home for tenants, any vacancies gaps, maintenance and repairs. As with any property owned, you’ll also have to pay the property taxes. Consult a tax professional to learn the expenses and related upkeep costs you may be able to deduct on your taxes for the rental.

Another thing to consider when using an inherited home as a rental is the future expenses if deciding to sell the property. You’ll likely be liable for capital gains tax when selling your rental property and the cost of related real estate services. While renting out an inherited property can be an excellent option for passive income, it’s important to weigh the pros and cons of becoming a landlord or expanding your rental portfolio.  

Oftentimes, there are multiple heirs to the inherited property, which can make the decision of what to do with the home more complex. A legal professional can help ensure all the legalities are worked out before moving forward with a final decision about the house. 

If you choose to sell a recently inherited house, contact our real estate agents to guide you through the selling process. 

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