Selling an Inherited House: The Stress-Free Guide

Inheriting a home from a loved one can be an emotional and complex situation, especially when deciding whether to keep or sell the home. Unless you plan to move into the home or use it as a rental property, you may decide selling the house is the best option. 

In this Redfin article, we’ll outline what you need to know about selling an inherited house so that you can navigate the process with ease. Whether you’ve inherited a home in San Diego, CA, or a house in Charlotte, NC, here’s what you need to know about selling inherited property.

In this article:

• Who inherits the property and who can sell it?
• How many people are inheriting the property?
• Does the estate need to go through probate?
• How to assess mortgages and debts on the inherited home
• 5 steps before listing an inherited property for sale
• Tax implications of selling an inherited home
• Common roadblocks 
• FAQs

Who inherits the property and who can sell it?

The first step is understanding who legally inherits the home and who has the authority to manage its sale.

Your loved one’s Will or Revocable Living Trust will indicate who inherits the home and what responsibilities they have. 

• 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. However, this can vary. 

How many people are inheriting the property?

Once inheritance is established, the next key factor is how many people are inheriting the home.

Selling an inherited home will largely depend on how many people are inheriting the property. If you’re the sole owner or if you’re a co-owner can change how you navigate the process. You’ll need to determine who holds the legal responsibility to handle the transaction. 

• Sole ownership: If you’re the sole owner of the property, then you can make decisions about the home without others involved. 
• Co-ownership: It’s common to co-own the inherited property with others, like siblings or other relatives, which can complicate the process. Some relatives may want to keep the home and others may want to sell.

>>Read: Selling a House with Multiple Owners

Does the estate need to go through probate?

Whether your loved one had a Will or a Revocable Living Trust can impact how long it takes you to sell the home. If your loved one had a Will, the estate may need to go through probate before you’re allowed to sell the property. 

Most states have a summary administration, but this is usually available only to small estates ranging in value from a few thousand to a few hundred thousand dollars. Note that many estates that include real estate and other assets will exceed this threshold. 

If the decedent has a Revocable Living Trust, you will not need to go through the probate process. Talking with your loved one’s estate planner or probate attorney can be helpful if you have questions about the Will, Trust, or probate process.

How to assess mortgages and debts on the inherited home

If the inherited home has a mortgage or other debts will impact how you move forward with the selling process. Here are some questions to ask:

• What’s the outstanding mortgage? The mortgage company that holds the loan can tell you how much is left to pay against the mortgage or loan on the house. If you want to keep the home, you’ll need to assume the mortgage and begin making payments.
• Are there other outstanding debts? Find out if property taxes were paid every year and if there are outstanding electric or water bills.
• Are there any liens against the property? Find out if there are outstanding liens and whether the property has a clear title.

5 steps before listing an inherited property for sale

There are several things to do before listing your inherited home for sale.

1. Clean out personal belongings. One of the most emotionally challenging aspects of inheriting a home is going through your loved ones’ personal belongings. While going through belongings, you can organize them into piles: what to give away, what to throw away, and what to sell.

2. Hold a yard sale or estate sale. After dividing up any possessions to heirs, you may opt to hold a yard sale or estate sale for the rest of the belongings. Homes show better on the market when cleaned and emptied. To help reduce the burden, an estate sale specialist can also help you sort through belongings and price them for sale.

3. Examine the home for repairs: If the home was occupied by a 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.

4. Have a pre-listing inspection: Another way to assess any issues with a home is to have a pre-listing inspection. Since you’ve inherited the home, you may not know the ins and outs of the home’s condition. A pre-listing inspection can help identify issues before they come up during the selling process. 

5. Make repairs and updates: With most homes, there will be minor repairs and updates you’ll need to make before listing the house for sale. If anything was uncovered during the pre-listing inspection, now would be the time to fix those issues. 

Tax implications of selling an inherited home

When selling an inherited house, there are complicated tax implications to consider. Let’s go over some of the things you can expect.

Capital gains tax and stepped-up tax basis

You may need to pay capital gains tax on the proceeds from the sale of the home, but in many cases the tax is minimal to none at all. This is because the IRS uses a “stepped-up tax basis” to determine how much you owe.

The stepped-up basis adjusts the home’s cost basis to the fair market value of the property at the time of the previous owner’s death. This prevents those who inherit property from owing substantial taxes on properties that have appreciated dramatically in value over the past several decades. In other words, as long as the home is sold close to the fair market value, you may owe little to no capital gains tax. 

However, if you wait to sell the property and it continues to appreciate, you may owe more capital gains tax on the increase in value from the stepped-up basis to the sale price. Consult with a tax professional to make sure you’re reporting the sale accurately. They can also help you understand your potential tax liability based on your situation.

Estate taxes vs inheritance taxes

Estate taxes and inheritance taxes are two different types of taxes that may apply when someone passes away. However, most people won’t owe either.

• Estate taxes: These are taxes on the entire estate’s value. There is a federal estate tax on estates valued over $13.6 million. Some states have additional estate taxes, but many do not.
• Inheritance taxes: These are taxes levied on individual beneficiaries and are based on what each person receives from the estate. There is no federal inheritance tax. Some states have an inheritance tax, but most do not. These taxes often depend on your relationship to the deceased, spouses and close relatives are usually exempt or taxed at lower rates.

Know how and where to report sale proceeds

When you sell inherited property, the IRS generally requires you to report the sale on your tax return. Whether you owe taxes or not depends on factors such as the home’s fair market value at the time of inheritance, any improvements you made, and the final sale price. 

Even if you don’t owe any taxes on the sale, it’s typically considered a reportable transaction. A tax professional can help you determine what you need to report on your taxes and ensure everything is filed correctly based on your circumstances. 

Common roadblocks when selling an inherited house

Selling any home has ups and downs, and selling an inherited house is no exception. Here are a few things to keep in mind:

• The probate process can take time: During probate, the executor or other beneficiaries have use of the home without actually transferring ownership of the property to the inheritor. However, this is a temporary situation as all property must eventually be transferred to another party.
• Handling equal distribution: Personal Wills may specify that the value of the estate must be divided equally between siblings or beneficiaries. Challenges may arise when it comes to agreeing on the value of assets.
• Emotional difficulty or guilt about selling:: Heirs may feel grief and guilt about not holding onto belongings or the home itself. 
• If the property is “underwater” or carries risks: You may have the ability to disclaim (not accept) the inherited home if there are issues. This might happen if the home has significant debt, liens, or environmental risks. Disclaimers must typically be made in writing and within a certain time frame.
• Disagreements between heirs: Things like the list price, how repairs are handled, and what offer to accept are all common issues you may run into. Working with a mediator, attorney, or real estate professional can help resolve disputes and keep the process moving forward.

FAQs about selling an inherited property

Can my sibling(s) force the sale of the property?

Yes, if co-owners can’t come to an agreement on selling the property, any one of them can typically file a partition action. A partition action is a legal process that may result in a court ordering the home to be sold and any proceeds divided. 

Can I buy out the co-owner’s share of the property?

Yes, in most cases you can buy out your co-owner’s shares of the property. This usually happens when one party wants to keep or live in the property while the others want to sell. 

How long does the probate process take?

Probate can be a lengthy process, but typically takes anywhere from six months to two years. In some cases, it can take even longer for an estate to be settled.

Do I need to disclose a death on the property?

If your loved one passed away on the property, there are some states that require you to disclose the death. If a buyer asks, you’re required to tell them, regardless of what state you live in.

Do I have to pay capital gains tax?

You may owe capital gains tax on the home sale. However, many people don’t, especially if they sell the property soon after they inherit it. The IRS allows for a “stepped-up basis,” which values the home at “fair market value” at the time of the previous owner’s death. You’re generally only taxed on any increases in value from the time you take ownership to when you sell the home.

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