Inherited property often comes with emotional and financial complications that make it a mixed blessing. If several beneficiaries are involved, there may be disagreements concerning what to do with the property. Heirs may lack experience in tax matters, and even sole beneficiaries frequently have internal conflicts about what to do with the home. Following are seven things for you to consider when dealing with inherited property.
Talk With a Real Estate Tax Professional
The first step after you inherit a property should be to talk with a experienced real estate tax professional. Estate taxes can be hefty as well as complex, and understanding potential tax burdens associated with the various available options helps heirs make better choices.
Sell the Property
If you live in another city or state and have no desire to move, selling the inherited property may be your best option. If other beneficiaries are involved, coming to a mutual agreement on a minimum price will prevent possible conflicts down the road.
Move Into the Property
Many people who inherit homes from their parents decide to move into the property themselves. This makes sense if you are already living and working in the area. Those who establish an inherited property as their primary residence will become exempt from capital gains taxes when they eventually sell the home.
Rent the Property to Another Party
If the real estate market in the area where the house is located is depressed, renting the property out to another party will generate revenue while waiting for more favorable market conditions to develop. You’ll have to change the insurance policy on the home to a landlord policy that covers legal liabilities in case a tenant has reason to sue. Depending on the individual laws of your state, you will also receive tax benefits from renting out the property. If you or one of the other beneficiaries has landlord experience, you may also benefit from managing the rental yourself rather than contracting with a property management service.
Turn the Property Into a Vacation Rental
Privately owned vacation rentals have become big business in recent years. Many travelers prefer the option of staying in an actual house rather than in a hotel. Keep in mind, however, that unless the home is located in an area that’s popular among vacationers, there’s no real guarantee that going this route will generate significant income. This also provides you with the option of using the home yourself during certain times.
Donate the Property
Donating the property may be a good option if the home has significant historical value. Depending on applicable
local tax codes, you may receive serious tax benefits from donating the property to the municipality or county. You may also be able to donate it directly to the charitable organization of your choice. Laws governing the charitable donation of property change frequently, however, so be sure to consult with an experienced real estate attorney or tax professional before coming to a firm decision.
Act Relatively Quickly
The important thing to remember when you inherit property is that you have many options. In most cases, you will
have to act fairly quickly because daily holding costs can rapidly devalue property. However, you should take enough time to make the best possible decision for everyone involved.
Most people find that once they come to a final decision about what to do with an inherited property, the associated stress and emotional baggage is substantially reduced. After everything is settled, most recipients also enjoy financial benefits no matter which course of action they decide on. This is particularly true for those who seek the advice of experts when making decisions concerning the property.