What to do with inherited property

What happens when you inherit a house

When someone dies, their house doesn't automatically become yours the next day. How it passes depends on how the owner held title. If the house was in a living trust, the successor trustee manages and distributes it. If it was owned jointly with a right of survivorship, or by a transfer-on-death deed in a state that allows them, it may pass directly. Otherwise, it usually goes through probate, and the court-appointed executor or administrator handles it until it's distributed to heirs.

Any mortgage stays with the house. You don't become personally responsible for the loan just by inheriting, but the loan still has to be paid or the lender can eventually foreclose. Federal law generally lets a relative who inherits keep the existing loan rather than having it called due because of the transfer. Contact the servicer, explain the situation and ask to be recognized as a successor so you can get account details.

What to do first when you inherit property

Before deciding what to do with inherited property long-term, take care of the basics. These steps protect the house and its value. Resist the urge to start clearing things out right away: valuables, important papers and items the will mentions should be found and listed first, and the executor may need an inventory for the court.

• Find the will, any trust documents and the current deed
• Order several certified copies of the death certificate
• Lock up, change the locks if keys are unaccounted for, and check on the property regularly
• Call the homeowner's insurance company; vacant-home coverage often has special rules
• Keep utilities on at a basic level and forward the mail
• Keep paying the mortgage, property taxes and HOA dues if you can
• Talk with a probate attorney about who has authority and what comes next

Option 1: Keep the inherited property and live in it

Moving in can make sense if the house fits your life, you can afford it, and the other heirs agree or you can buy them out. Count all the costs: mortgage, property taxes, which may rise if exemptions end or the house is reassessed, insurance, and repairs on what may be an older home.

If you make the house your main home and later sell after meeting the IRS ownership and use tests, the home-sale exclusion may apply to the gain. Your stepped-up basis also helps. A tax professional can explain how the timing works.

If other heirs share ownership, living in the house usually means paying them for their shares or agreeing in writing on rent or expenses. Without an agreement, one heir living in a shared house is a common source of family conflict.

Option 2: Keep it and rent it out

Renting turns inherited property into income, but it also makes you a landlord. You'll need landlord insurance, money for repairs and turnover, and either the time to manage tenants or the budget for a property manager. Rental income is taxable, and you'll generally depreciate the house, which affects the tax when you sell later.

Before you rent, estimate the true monthly profit after mortgage, taxes, insurance, maintenance, vacancy and management. Many inherited houses need updates to rent well, and some local rules require inspections or registrations before a unit can be rented.

Renting can also be a way to hold the house while the family decides. Just be careful about timing: once a tenant moves in under a lease, the lease generally continues if you sell later, which can limit your buyers to investors.

Option 3: Sell the inherited property

Selling is often the simplest choice, especially when there are several heirs, the house needs work, or no one lives nearby. It turns the house into money that's easy to divide and ends the monthly carrying costs. Because of the stepped-up basis, selling soon after the death often means little taxable gain.

You can list with an agent, which usually brings the highest price for a house in good condition, or sell directly to a cash buyer as-is, which skips the clean-out, repairs and showings. Compare what each would net after costs and time.

Selling doesn't have to wait until probate is fully closed. In many cases the executor can sell once they're appointed, sometimes with court approval, and distribute the money to the heirs later. Ask your attorney what your state requires before you sign anything.

What to do with inherited property when there are several heirs

When siblings or other relatives inherit together, each one usually owns a share, and decisions generally need agreement. Talk early about what each person wants. Common outcomes are that one heir buys out the others, the heirs keep it and rent it together under a written agreement, or the heirs sell and split the proceeds.

If you can't agree, many states let a co-owner ask a court to order a sale through a partition action. It's expensive and slow, so mediation is worth trying first. Write down any agreement about who pays the ongoing costs and how they'll be reimbursed from the sale.

It often helps to separate the money decision from the emotional one. Agree first on what the house is worth, using an appraisal, and on what it costs each month to keep. Then talk about what each person wants. Numbers everyone accepts make the rest of the conversation easier. If emotions run high, a neutral third party, such as a mediator or the estate's attorney, can keep the focus on the options rather than old family history.

Costs to plan for while you decide

An inherited house costs money every month you hold it, even if no one lives there. Track these expenses; they may be reimbursable from the estate or shared among heirs, and some affect your taxes.

• Mortgage payments and any home equity line
• Property taxes and HOA dues
• Insurance, which may cost more for a vacant home
• Utilities, lawn care and basic maintenance
• Repairs, clean-out and any probate or legal fees

Taxes on inherited property

Inheriting a house generally isn't taxable income, and there's no federal inheritance tax. The federal estate tax applies only to large estates and is paid by the estate. A small number of states have their own estate or inheritance taxes. When you sell, your basis is generally the market value on the date of death, so gain is figured from that point. Get a date-of-death appraisal and keep it with your records, and talk with a tax professional about your situation. The choice you make, to live in the house, rent it or sell it, changes how taxes on the inherited property work later, so it's worth asking before you decide.

What to do with inherited property you don't want

If no one wants the house, selling is usually the answer. You aren't required to fix it, empty it or wait. In rare cases, such as a house worth less than its debts, heirs may consider not accepting the inheritance, which has formal rules and deadlines. Ask a probate attorney before doing anything with a property you're not sure you want.

Don't let an unwanted house simply sit. Vacant houses lose value through small problems that go unnoticed, like a slow roof leak or a broken pipe, and unpaid taxes or insurance lapses can create bigger ones. Even if the decision takes time, keep someone responsible for checking on the property and paying the bills.

Selling inherited property with Prominent

Prominent Cash Offer buys inherited houses directly, as-is, in any condition, with belongings still inside if needed. If the property is a fit, you'll get a written cash offer with the terms spelled out. There are no fees or commissions, we pay the closing costs, and you choose the closing date. There's no obligation, so you can compare it with keeping, renting or listing the house.