Inheriting a home can be a wonderful gift, but do you know what you’ll do with that property?
You have several options, and all of them come with advantages and challenges. You may want to move into the home yourself. Perhaps you’ll sell it or maybe you’ll rent it out.
Before you even make that decision, there are some strategies that will help you do the best thing for yourself and your future. Here’s what to do as soon as you know you’re inheriting a home.
Quick Look:
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Look at the Basics: What Does it Mean to Inherit a Home?
When you inherit a home, you’re taking ownership of a property that once belonged to someone else. That someone else could have been a family member or a close friend. There may be a lot of emotions around this inheritance, and you’ll want to let yourself feel them.
There are legal, financial, and tax considerations to think about, as well. Let’s take this step by step.
Step 1: Understand the Legal Process
The first thing you need to do when inheriting a home is to understand the probate process.
Probate is the legal process that takes place after someone passes away. It involves distributing the decedent’s assets, including real estate, and paying any outstanding debts. If you are named as the beneficiary of a property in a will, you’ll typically have to go through probate to officially take ownership of the home.
Probate law can be complex, and there are two key things to be aware of:
- The Will. If the decedent had a valid will, the property will be distributed according to its instructions. This includes whether or not the property should go to a specific heir, be sold, or remain in the family. The will must be filed with the court, and the probate process can take anywhere from a few months to over a year.
- Intestate Succession. If the decedent did not have a will, the property will be divided according to Florida’s intestate succession laws, which prioritize relatives such as spouses, children, and parents.
If you’re unsure about the probate process or whether the property was included in the will, it’s a good idea to consult with a probate attorney. They can help ensure that everything is handled properly.
Step 2: Get the Property Assessed
Once the probate process is underway or complete, you’ll need to get a clear picture of the property’s value. This will help you decide what to do next, especially if you’re considering selling the home or even refinancing it to access some equity.
- Property Appraisal
A professional appraisal is important if you plan to sell the home or are looking at possible tax implications. Property values can fluctuate due to varying factors such as location, market conditions, and the condition of the home itself. The appraisal will give you an accurate, fair market value and can help you determine what your potential sale price might be if you choose that route.
- Property Inspection
Even if the home is in relatively good condition, it’s a good idea to have a professional home inspection done. This will identify any maintenance or repair issues that may not be immediately visible. Potential issues like mold or water damage may be more common than you think, especially in coastal or flood-prone areas.
- Outstanding Debts or Liens
Before moving forward with any decisions, it’s also necessary to find out whether there are any outstanding debts or liens on the property, such as unpaid taxes or mortgage payments. If there are, these will need to be dealt with before you can transfer ownership or sell the home.
Step 3: Understanding Your Options
Once you have a clear picture of the property’s value and condition, it’s time to explore your options.
There are several pathways for dealing with an inherited home, each with its advantages and disadvantages. Let’s take a look at the most common options.
- Option 1: Keep the Property
If you have sentimental attachment to the property, or if the home is in a desirable location, keeping it might be the best option for you. If you intend to live in the home, you’ll need to consider whether it’s suitable for your lifestyle and if it needs any significant renovations or repairs. Property taxes can vary greatly depending on the county and home value, so this is also something to keep in mind.
Keeping the home can serve any emotional attachment you might have, or protect your family legacy if this is a property that you grew up in. You might want to hand it down to your own children or family members one day. The home can become a personal asset and possibly appreciate in value over time.
On the flip side of this option, however, is the potential expense of holding onto the home you inherit. There may be maintenance costs, you’ll have to pay for insurance and property taxes. If it’s a larger home that requires a lot of upkeep, you might have to seriously think about your budget.
- Option 2: Rent the Property
If living in the home isn’t ideal for you but you still want to keep it as an asset, renting the home could be an option. Florida’s rental markets are thriving, and in many areas, demand for rental properties is high. You’ll enjoy steady income from rental payments and you can expect long-term property appreciation. Renting out the home also gives you the ability to hold onto the property while deciding what to do with it in the future.
This option means landlord responsibilities. There will be tenants, repairs, and maintenance to deal with, unless you work with a professional property manager, which we would recommend.
- Option 3: Sell the Home
One of the most common decisions for those inheriting a home is selling it. This provides you with an immediate financial payout, which can be reinvested elsewhere or used to pay off debts. You won’t have the responsibilities of homeownership, and if the mortgage is paid off or the home has appreciated significantly, selling it could provide a large return.
Beware of the capital gains tax, though. If the home has significantly appreciated in value since the decedent’s purchase, you may be subject to capital gains tax. You might also feel conflicted emotionally. If the home holds sentimental value, selling might feel like a loss.
Before selling, it’s a good idea to consult with a real estate agent who knows the market well. We can give you an idea of the property’s market value and guide you through the sales process.
- Option 4: Donate the Property
Some people choose to donate an inherited property to a charity, nonprofit organization, or a cause that they care about. You’ll find there are certain tax advantages to donating real estate to qualifying charities, such as potential deductions. This donation could result in generous tax benefits. You’ll also have the opportunity to support a cause that matters to you or the decedent.
There will likely be complicated paperwork. And, giving away the property means you forgo any potential financial gain.
- Option 5: Transfer Ownership to Another Family Member
If you don’t want the property but a family member does, you might consider transferring ownership to them. This process, though legally possible, can come with its own tax implications and legal requirements, so don’t make any moves without solid legal support.
Step 4: Financial Considerations
Once you have decided what you want to do with the property, it’s time to look at the financial side. Florida doesn’t have a state income tax, but there are other taxes to consider:
- Property Taxes. Florida has relatively low property taxes compared to other states, but they can still add up depending on the value of the home and where it is located.
- Capital Gains Tax. If you sell the home for more than its market value, you could be subject to federal capital gains taxes.
- Insurance. Homeowner’s insurance is required in Florida, especially due to the state’s vulnerability to hurricanes. Make sure the property is adequately insured before moving forward with any major decisions.
- Estate Tax. While Florida doesn’t have an estate tax, the federal government does impose a tax on estates over a certain value. Consult with a tax professional to see if any federal estate tax applies.
Step 5: Take Action and Get Expert Advice
Finally, the most important thing you can do is take action. Whether you decide to keep, sell, rent, or donate the home, taking the time to do so thoughtfully will set you on the right path. Always seek professional guidance when needed, including real estate agents, property managers, financial advisors, and attorneys, especially when handling the probate process.
Inheriting a home can potentially change your life, and with the right steps and guidance, you can make the most informed decision possible. Your first step should always be to gather all the information, understand your legal responsibilities, and then choose the option that aligns with your personal and financial goals.
Let’s work on this together. Contact us at Anchor Down Real Estate & Rentals.
