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What to Do With Inherited Property

what to do with inherited property

What to Do With Inherited Property

While a home may be the most generous gift you receive, inheriting a property can be an emotionally fraught process. You are likely inheriting the property after the death of a loved one, and setting foot inside the house may bring on feelings of sorrow and grief. On top of these emotions, you may also be dealing with stressful and confusing financial decisions. Determining what to do with inherited property impacts you and your family. To move forward, you should understand your options, assess the financial consequences of your decision and seek assistance from an expert who can help you navigate the legal and tax requirements associated with inheriting property.

What Happens When You Inherit Property?

You inherited a house — now what? When you inherit property, what should your next steps be? What are the tax implications? Below, we cover in detail what happens when you inherit a house.

Assess Each Room of the House

Your first step is to go through the house room by room and clean it out. If you've inherited a house, it's more than an asset — it is also a nostalgic place. Your cherished memories can make cleaning out a home challenging as you try to decide what to keep and what to get rid of. Take your time through this process, allowing yourself breaks when you need them.

If your loved ones left a will, pay attention to the household items or valuables listed. Even without a will, you may still want to pay attention to valuable or large items and look for markings or labels that may indicate the deceased's wishes. You may want to consider separating the belongings into groups to keep, donate and discard.

If you can find paperwork, review it to help you manage the home or settle the estate. Paperwork for managing the home may include:

  • Account statements
  • Utility bills
  • Business cards

Inheriting a property involves doing some detective work to get an estate in order, so take your time.

Determine Whether Repairs Are Needed

Determining whether the inherited property needs repairs is another essential step to take. If the home needs repairs, this can impact what you do with the property next. As you would with a home you purchased, schedule a home inspection after you inherit a property.

repairs for inherited property

If you plan to sell, you should be aware of any extensive repairs you'll need to take care of beforehand, such as improvements on the roof, foundation, furnace or windows. If you intend to rent the home, keep in mind that renters tend to care more about creature comforts rather than the property's long-term condition, so you may want to consider the paint and carpeting as well.

Consider the Tax Implications

If you inherit a property, do you need to pay an inheritance tax? While inheriting property does not automatically trigger a tax liability, what you choose to do with it may lead to the need to pay property taxes or capital gains taxes.

  • Step-up taxes: When you inherit property, you may benefit from the step-up tax basis, which means you will inherit the property at its fair market value. You will only owe taxes on gains between the date of inheritance and the date when you sell the property.
  • Capital gains taxes: When you sell an investment, you pay capital gains taxes to the government based on the profit you earn. However, you do not need to do a 1031 exchange on an inherited property. When you inherit the property, there is no need to pay capital gains taxes. In many cases, the step-up tax basis will protect you from most capital gains taxes.

While the federal government does not tax inheritances, a handful of states do, so you may want to check whether the property you inherited may be subject to state taxes. Depending on how large the estate is, you may also need to pay a federal estate tax.

What Can You Do With Inherited Property?

What you do with your inherited property depends on its physical condition and financial status, along with time constraints you may be facing. Below, find out more information on what to do with an inherited house.

Review the Mortgage

What should you do if there is still a mortgage on the home? If you are wondering what to do when you inherit a house, you should first determine whether there is a mortgage. Review the terms and what amount remains outstanding. When you inherit a residence with a mortgage, this may impact how quickly you rent or sell the property. Here are more details to consider about the possible mortgage you could be facing.

  • Reverse mortgage: A reverse mortgage is a financial product popular among older homeowners who want to access the home's equity without moving. The property's original owner continually receives cash for the home's equity and repays the loan when they move out. When the original owner dies, the beneficiary may have a limited time to repay the amount due on the property. You may need to sell the property, obtain a new mortgage in your name or pay the remaining balance out of pocket.
  • Due-on-sale clause: This clause states the loan is due if the borrower transfers the home to another party, especially someone who is not a family member. If this clause exists, you may need to sell the property or pay the mortgage in full. If you inherited the property from a family member, you may be able to instead assume the mortgage payments.
  • Mortgage paid by the estate: If the person who originally owned the home had a mortgage on it, their estate may pay it off after their death. In this case, you own the home with no liability attached.
  • Underwater property: If more is due on the inherited property than it is worth, this is an underwater property. In this case, you may want to do a short sale, which means accepting less than the amount that remains on the loan.

Move Into the Property

After inheriting a house, one of your options is moving in. If you move into a property with an outstanding mortgage, determine whether it makes financial sense for you to take on this debt obligation. Consider whether the mortgage is greater than the home's value, if the ongoing maintenance is too high for you or if the principal and interest payments are more than you can afford.

If you own the home free and clear with no debt obligations, you may want to move in and sell your previous primary residence. That way, you can keep the property in your family and live in a home debt-free. If you alone inherited the property, this may be the right option for you. If your siblings inherited the property as well, deciding who can move in may be more challenging.

Rent the Property

Alternatively, you may want to rent the property. Be careful when pursuing this option, as it may have drawbacks. You will need to pay for the property's upkeep, along with property taxes, vacancies and renovations. Though renting can allow you to earn a profit over time, a large portion of these funds may go back into maintenance.

Aside from a monetary commitment, renting a property may also be a commitment of your time and effort unless you hire a property manager.

Sell the Property

Finally, you might also sell the property. Many who inherit a home sell it to make a quick profit. On top of making money, you won't have to worry about handling any repairs. This option tends to be the easiest and fastest, especially if you sell for cash, as many cash buyers close quickly and keep the process simple.

If you inherit a property needing extensive upkeep and you don't have the money, time or experience to complete the repairs yourself, this may be the right option for you.

What Can You Do With an Inherited 1031 Investment Property?

If you've inherited investment property, you might be wondering what your options are. Should you sell the property or exchange it? And if you decide to exchange it, what does that process entail?

Can You Do a 1031 Exchange on Inherited Property?

One benefit of a 1031 exchange is that the investor can indefinitely defer capital gains taxes by exchanging their properties into new replacement ones. When you inherit a property, you do not need to exchange it. Step-up in basis allows you to avoid inheriting capital gains tax liabilities or depreciation recapture. The step-up in basis is equal to the property's fair market value when the investor passed away.

If you want to sell the property rather than maintain it, this may not be the most advantageous option for your taxes. You may have to pay capital gains tax if you sell the investment property.

About Us and Our Services at 1031 Crowdfunding

It can be challenging to fully understand the complex 1031 exchange process. With the services we offer at 1031 Crowdfunding, we make it more manageable. We are experts about the resources needed to successfully handle the logistics of a 1031 exchange.

Services That 1031 Crowdfunding Offers

With our 1031 exchange syndication platform, you will not need to deal with the challenge of finding high-value properties to exchange. Hold partial ownership of an investment property and contribute to the investment funds while leaving the property's logistical responsibilities to professional managers. Our services include the following.

  • Step-by-step guidance through the investment process: After you decide what to do, our team can guide you through completing the paperwork and buying the investment to ensure you complete each step correctly.
  • Access to a selection of investment properties: Our innovative platform offers you access to a wide range of investment properties. Before you move forward, you can review your investment options and obtain the documentation and information needed. Our portal for online investors also ensures you have access to all the documents you need.
  • Recommendation of an exchange intermediary: We can recommend a qualified exchange intermediary who will handle the exchange process. This intermediary is crucial, as they'll help you navigate Section 1031 and assist you in reinvesting your money by holding the profits from your sale and transferring the funds so you can acquire a new property.

Why You Should Choose 1031 Crowdfunding

Finding the 1031 exchange company that is the right fit for you and your investment needs is vital to making sure the exchange process is as easy and stress-free as possible. At 1031 Crowdfunding, we can offer you this and more. Enjoy the following benefits when you choose us.

why choose 1031 crowdfunding

  • Partial ownership: With hands-off investments and partial ownership, you will still have the benefit of investing, but you will not have the responsibility of property maintenance. Instead, you can dedicate your time to tackling other concerns.
  • Quick closing time: At 1031 Crowdfunding, most of our clients close in three to five days.
  • Customized service: Our personalized assistance helps you complete the exchange efficiently and conveniently.
  • Several DST investments: Our wide selection of Delaware Statutory Trust investments allows you to make more informed decisions about the investments that best suit your goals and preferences.
  • Professional team members: Our expert team has the experience necessary to navigate regulations and facilitate the successful completion of your exchange.
  • Readily accessible resources: Do you have questions or concerns about the process? We can provide the answers you need, along with information about the properties you are considering.

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We have experience with various investment structures, including public non-traded REITs, DSTs and private real estate funds. Our management team has the expertise required for this continually changing industry. Our users have rated us the No. 1 Real Estate Crowdfunding Platform for 1031 Exchanges. Register to join the crowd at 1031 Crowdfunding today to view our state-of-the-art marketplace for 1031 investment properties.

This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements are speculative in nature and involve a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC, member FINRA, SIPC.