Helpful miscellaneous articles
regarding our retirement plan and planning.
Like you, I review my retirement nestegg and plan from time to
time. Recently, I went though some
continued education for some credentials I maintain and it occurred to me that
we all could use a review about these issues.
So with your help, we will share and post articles and info that may be
helpful and of interest to many of you in this section.
The Stress-Free Guide to
Selling an Inherited Home
Inheriting a home from a loved one can be a
wonderful gift or a challenging inconvenience, depending on your individual
circumstances and what you plan to do with the home. Many times, families will
move into an inherited home and sell their own properties that they’ve been
living in. In other cases, those who inherit a home will hold an estate sale to
sell off unneeded items and then sell the property itself.
If you won’t be moving into the property and don’t
desire to or are unable to rent the property, selling the home is an option. In
this guide, you’ll find resources and information on selling an inherited home
while avoiding the usual pitfalls and hassles that accompany the process.
Selling a home that you’ve inherited from a loved
one can be an emotional process, so the last thing you need to make it even
more difficult are avoidable obstacles that waste time, cost money, and add to
your frustration. This guide contains everything you need to know to make the
process as smooth and painless as possible.
Use our home sale proceeds calculator to find out what selling your
home will net your family.
Tax Implications of Selling an Inherited Home
One of the first things you’ll need to evaluate
when considering selling an inherited home is how the sale will impact you
financially. In other words, you may be subject to taxes on any proceeds from
the sale or from the inheritance of the property itself. While laws may differ
from state to state, the following resources will help you understand the tax
implications of selling an inherited property.
Inherited properties do not qualify for the home sale tax
exclusion. Typically, when you sell a property you’ve lived in for at least
two of the previous five years, you can take advantage of a tax exclusion. That
means up to $250,000 of proceeds for a single homeowner is tax-free, and
married couples can avoid paying taxes on up to $500,000 in proceeds. Unless
you plan to live in the home you’ve inherited for at least two years, you won’t
be eligible for this exclusion.
You do get to take advantage of the stepped-up tax basis.
Inherited properties aren’t eligible for the home sale tax exclusion, but you
do get to take advantage of a stepped-up tax basis. Ordinarily, proceeds are
calculated using the purchase price plus any improvements made to the property
during ownership. In the case of an inherited property, the tax basis is the
fair market value of the property at the time of the previous owner’s death.
This prevents adult children from owing substantial taxes on properties that
have appreciated dramatically over the past several decades.
Know where and how to report sale proceeds. The IRS
requires those who sell an inherited property to report proceeds as taxable
income. The specific amount that will be taxable is based upon the fair market
value and other improvements used to calculate the basis. This publication from
the IRS describes where to find instructions and which forms to use.
Even if you don’t have to pay taxes on the sale, it is still a
reportable event. According to this article, it’s a good idea to report the
sale of an inherited home even if no taxes will be owed.
There’s a difference between inheritance tax and estate tax,
and even some differences among individual states. Tax law is by no means
simple, so it’s best to seek the advice of an accountant or attorney to figure
out the many nuances related to the financial obligations that come with
inheriting real estate.
What to Do to Prepare for the Sale
After understanding the financial implications
and determining that selling the property is the right course of action, you’ll
need to prepare the home for sale. That means clearing out personal belongings,
de-cluttering when necessary, and de-personalizing the rooms. The following
tips and resources provide helpful information for preparing an inherited home
for a sale.
Clean out personal belongings. This is one of the most
emotionally challenging aspects of inheriting a home. Going through your
parents’ or loved ones’ most personal belongings often brings back memories of
the past. This article offers tips for clearing out your late parents’ home,
including helpful tips such as hiring an appraiser to value belongings such as
jewelry and antiques.
Hold
a yard sale or estate sale. After divvying up cherished possessions to
heirs, you may opt to hold a yard sale or estate sale for the rest of the
belongings. As this article explains, homes show better on the market when
clean and empty or staged. And, as this article points out, some generations are much less
likely to have a desire to keep certain memorabilia or sentimental objects
around.
Wait for the estate to go through probate. The estate must
go through probate before you may sell the property. Most states have a summary
probate process, but this is available only to small estates ranging in value
from a few thousand to a few hundred thousand dollars. Most estates that
include real estate and other assets will exceed this threshold.
Determine who holds the legal responsibility to handle the
transaction. If the property owner left a Will, the executor is the person
who has the responsibility and ability to distribute the assets of the estate,
including real estate. If the property is in a Trust, the trustee holds this
same power. In situations where siblings have inherited property together from
their parents, one person often has the ultimate authority and responsibility
to handle the real estate transaction.
Choose the right real estate agent. While it’s often
tempting to choose a real estate agent based on who you know, enlisting the
services of friends or family members to coordinate the sale of an inherited
home is probably not the best idea. This article offers helpful suggestions for
choosing the right real estate agent for your needs.
Pricing Your Inherited Home and Negotiating Offers
Pricing an inherited home to sell is one of the
biggest decisions you’ll make, and it hinges on many factors, such as whether
there is an existing mortgage on the property that must be paid off, whether
the proceeds from the sale will be used to pay off other remaining debts, and
of course, the current real estate market conditions. The following tips and
resources will help you – along with the help of your real estate agent –
determine the best listing price for your inherited home and negotiate with
buyers to get the most out of the property.
Don’t expect to get your asking price. Most people selling
a home base the listing price on comparable properties that have sold recently,
but depending on market conditions (whether it’s a buyer’s market or a seller’s
market), offers may be tens of thousands of dollars below your asking price.
Ultimately, the negotiation process determines the final selling price, so
choosing a real estate agent who will advocate for you and negotiate on your
behalf is important.
Don’t price the property too high. Ideally, you want to
list the property at a realistic price – but at a higher price than you’re
willing to settle for. A high or unrealistic listing price turns prospective
buyers away, while a lower, more reasonable price can attract buyers. A low
listing price is sometimes even used as a strategic move to attract a multitude
of buyers who may then enter a bidding war, meaning the seller ends up with a
higher sale price at the end of the day. Price it low enough that it’s
attractive to prospective buyers, but high enough that you have room to
negotiate.
At the same time, don’t settle for less than the property is
worth. Buyers want to get a home for the lowest possible price, while
sellers naturally want to get the maximum price for the property. This is
particularly true when the home is an inherited property that was once a family
home where the sellers have many childhood memories. This is why offers are
sometimes countered and buyers and sellers end up agreeing on a final sale
price somewhere in between the two extremes. This article offers several tips
for distressed sellers who need to sell quickly but also want to get a fair
price for their properties.
Don’t be too eager to make concessions. Often, offers from
potential buyers will ask for a lower selling price, seller assistance with
closing costs, or even funds placed in escrow for certain repairs or
improvements. This article offers several helpful tips for skillful
negotiations applicable to both buyers and sellers.
Don’t accept the first offer you receive. Unless you’re
lucky enough to get a full-price offer on the property (in a hot seller’s
market, this can happen if the property and price are right), don’t be too
hasty in accepting the first offer you receive. In most cases, buyers will make
an initial offer that is less than what they’re actually willing to pay and
below – sometimes tens of thousands of dollars below – the listing price. This
article offers valuable tips for playing hardball with counter offers and
getting what you know the home is worth.
Educate yourself on the negotiation tactics buyers tend to use
and decide what you will and will not compromise. If you’re prepared with
the knowledge of what to expect from buyers and already know what you’re
willing to compromise and on what you intend to stand firm, you’re better
equipped to make counter offers and clearly convey your expectations. It will
also be easier to walk away from a deal that doesn’t meet your needs.
What to Expect During the Sale Process
The process of selling a home can take weeks to
months, depending on the condition of the property, market value and market
conditions, and other factors such as the season and even the skills of your
real estate agent. From the offer to closing, these resources outline what to
expect while you’re selling an inherited home.
Selling a home is a multi-step process beginning with market
research and ending with a closing. This article from NOLO outlines the
process of selling a home step-by-step. NOLO also offers a list of useful resources that are helpful for researching the
market and comparing listing prices in your local area.
The
property inspection is one of the most important steps in a real estate
transaction. A certified home inspector will inspect and investigate every
inch of the property to look for problems such as rotting structures, broken
pipes, cracked foundation walls, and other problems that could spell financial
trouble for the buyers in the near future.
When multiple family members are involved, legal nuances and
personality conflicts may arise. This resource provides answers to a
variety of questions related to handling the sale of an inherited property,
transferring ownership of properties between relatives, tax implications, and
many other questions people who have inherited property may encounter.
Your real estate agent may hold a broker’s open house or a
general open house. After listing a property, some real estate agents like
to hold open houses to generate initial interest in the home. This article
describes several things that typically happen after listing a property for
sale, including open houses and the typical six-week “wall” sellers hit if
there hasn’t been interest in the home after six weeks on the market.
Just because you’ve listed a home on the market doesn’t mean
your expenses and obligations have ceased. If the property has a mortgage,
those payments must still be made on time. Utility bills, such as water and
sewer, electric, trash removal, cable, and any other connected utilities must
also be paid. You may also encounter additional expenses and even demands on
your time for lawn maintenance and other household maintenance tasks.
Hidden Gotchas When Selling an Inherited Home
Any real estate transaction can have its share
of ups and downs, and the process of getting from offer to close is often rife
with obstacles, as well. Selling an inherited home is certainly no exception;
in fact, you may be more likely to encounter some surprises simply because the
circumstances are different or you’re not as familiar with the property as you
think you might be. The following tips and resources offer advice for coping
with these hidden gotchas without having a total breakdown.
Wily executors can keep an estate in probate for years.
This enables the executor or other beneficiaries to have use of the home and
other assets, without actually transferring ownership of the property. This is
a temporary situation, however, as all property must eventually be transferred
to another party, as this article explains.
Handle equal distribution carefully. Many wills specify
that the estate must be divided equally between siblings or beneficiaries. This
means the value of the estate must be distributed equally, but challenges arise
when it comes to agreeing on the value of assets such as sentimental
belongings. This article suggests ways to handle the equal distribution of
assets among siblings.
Try not to feel guilty about items you choose not to keep.
This article touches on the reality of divvying up belongings after a loved one
passes and offers tips for determining what to keep. Not only is it emotionally
draining to sort through decades of cherished possessions and memories, but
heirs are often riddled with grief and guilt about not holding onto every
belonging that carries a memory.
If the property is “underwater,” you may have other options.
This article explains that heirs may choose not to accept an inherited home at
all if there are environmental concerns or more money is owed on the mortgage
than the home is worth. You’ll also want to check to ensure there are no liens
on the property before putting it on the market.
You may be facing more repairs than you realized. If the
home was occupied by an elderly loved one who was unable to keep up with regular
home maintenance adequately, the property you’ve inherited could have both
visible and hidden problems that will almost certainly arise during a home
inspection. These issues, depending on their severity, can cost you thousands
of dollars – or even the sale.
You and your sibling(s) may not agree – on the purchase
price, on who gets to live in the inherited property, how necessary repairs
should be handled, or really anything involving the property you’ve inherited
jointly. Shocking, we know. But the truth is even siblings who otherwise get
along quite well can find themselves in a heated argument about their former
family home. This article offers tips for handling a home you’ve inherited with
a sibling.
Selling a home you’ve inherited from a loved one
who has passed carries much responsibility. It’s already an emotional process,
and adding the typical stress that comes with selling any property can easily be
enough to send even the calmest, coolest, and most collected person over the
edge. Arming yourself with the information and resources provided in this guide
will prepare you for any obstacles that may cross your path, making the sales
process smoother and more bearable.
~~~~~~~~~
(As
with any of these informative articles, anyone who needs someone to talk to
about
this
very subject contact me and I can direct you to a knowledgeable advisor).
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Full post disclaimer in left column. PCN Home Page is located at: http://pcn.homestead.com/home01.html
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