Inheriting real estate from a parent can be an emotionally charged experience, as the property often holds precious memories and sentimental value. However, you should approach this major financial decision with a clear head and consider all possible options and outcomes. This is especially true when the house is inherited by multiple family members, as differing opinions and circumstances can complicate matters.
You may decide whether to sell the inherited home or keep it for personal use or as a rental property. However, you should first evaluate your emotional attachment to it objectively and explore the potential financial implications of each choice.
Consulting with a real estate lawyer can provide valuable guidance on navigating legal hurdles and making informed decisions that align with your best interests.
What are my options for managing an inherited property?
When inheriting a house, you typically have two main options: sell the property or keep it for personal use or as a rental. To help make this decision, it can be helpful to consider the scenario as if you had inherited cash instead of the house. If you had the money in your bank account, would you choose to purchase this particular property? If the answer is no, selling the house may be the most logical choice. However, if you are unsure or would buy the house, it's worth exploring the possibility of keeping the property further.
What are the tax implications of an inherited property?
When inheriting a house, you should always be aware of the potential tax consequences. You'll likely receive a step-up in basis for tax purposes when inheriting a home from a parent. The cost basis is typically the property's market value on the date of death or an alternate valuation date, which is typically six months after the death. Regardless of the holding period, the step-up is always considered long-term for capital gains tax purposes.
However, there are some exceptions to the step-up basis. For example, not all inherited properties are eligible for a step-up basis. These are usually homes inherited from certain irrevocable trusts or homes that must remain in trust.
What factors should I consider when deciding what to do with an inherited property?
When inheriting a house, it's natural to consider your parents' intentions. However, estate plans primarily focus on distributions rather than sentiments. While some parents may express their desire for their children to keep the family home, many simply leave the house to their heirs without any specific expectations.
Without clear guidance from the deceased, you may feel obligated to keep the inherited property, even if it doesn't align with your financial circumstances or lifestyle. However, just because your parents left you the house doesn't necessarily mean they wanted you to keep it. When deciding what to do with an inherited house, prioritize your own financial situation, goals, and needs.
Common reasons to sell a house include:
- Inability to afford the costs and upkeep, including property taxes, maintenance, buying out other family members, and assuming any existing debt.
- Limiting taxable gains by selling quickly, especially if benefiting from a step-up in basis.
- Challenges of co-owning with siblings, such as differing financial means, proximity, lifestyles, and potential conflicts over repairs, usage, and rental income.
- Cost and effort to make the house suitable for your needs, considering layout, furnishings, and any necessary renovations.
Some reasons to keep the house may include:
- It's a unique property with sentimental or historical value that is difficult to replicate.
- It aligns with existing financial goals, such as owning a vacation home in the same location.
- There's potential for rental income or split use between personal use and renting.
Let Hocker Law guide you through the decision-making process
While the emotional attachment to an inherited property may be strong, it's helpful to seek legal guidance from an attorney before keeping or selling the inherited home. To ensure that you make the best decision for your unique circumstances, get help from an experienced Indianapolis real estate lawyer at Hocker Law, LLC.
Our attorneys have extensive experience in real estate matters. We can help you understand the tax implications, potential challenges of co-ownership, and the steps necessary to sell or keep your inherited house. Contact us online or call today to schedule a free consultation with our legal team and take the first step in making an informed decision.