Inheriting a home is one of the most overwhelming experiences anyone can face in their life because the home is just one of many parts of the estate management process. Fortunately, even though the home selling process is complicated, you can make it more manageable with the information in this article.
Laying the groundwork for success
Soon after inheriting a home, it’s essential to know the status of the mortgage. You can surface any liens or judgments associated with the property by running a title search. Common liens on homes include unpaid taxes, a home equity line of credit, or a reverse mortgage. Know that as the new homeowner, if applicable, you are responsible for the mortgage payments moving forward.
Another consideration after inheriting a home is the length of time before you assume legal ownership. The precise timeline varies based on how the home is inherited, either by probate inheritance, a living trust, or a transfer on death deed (commonly referred to as a beneficiary deed).
The importance of knowing the home’s worth
Before investing too much time and effort into selling your home, you should get a free home appraisal to determine how much effort should go into home improvements. Free home appraisal solutions use automated valuation models (AVMs) to process data from sources such as data from county auditor and tax assessor records, MLS listings and sales, and user-submitted data.
Keep in mind that appraisals provided by AVMs are just preliminary estimates as they don’t account for the exact square footage of your home and other essential metrics.
Common methods to touch up the space
If you’ve inherited a property with outdated decors such as 1970’s shag carpet and popcorn ceilings, you’ll want to focus on light cosmetic upgrades rather than full-blown room renovations. You can easily determine the best type of project to improve your property by hiring a real estate agent to help with the sale.
The most common improvements homeowners implement after inheriting a property include:
- Investing in professional landscaping to groom the lawn, adding new mulch to the garden, and repainting the front door as ways to boost curb appeal.
- Replacing aged carpet and linoleum with vinyl wood flooring.
- Removing faux plants, furniture covers, window valances, and other out-of-date decor elements.
- Painting the walls in primary shared spaces of the home with neutral and light colors such as shades of beige or gray.
Considering tax implications after the home sale
Generally, when you inherit a home, you don’t have to pay taxes on it until after it’s sold. The taxes you pay concerning the home’s sale are capital gains taxes. A key consideration with capital gains taxes is that they’re calculated using the stepped-up basis, meaning the home’s value is reset to zero upon the previous owner’s death.
The new homeowner is then only responsible for paying taxes on the increase in the home’s value. If you live in the home as your primary residence for at least two of the previous five years, you may be eligible to exclude up to $250,000 of the home’s increased value if filing single. If you file jointly, the limit becomes $500,000.