A house is likely to be one of the most valuable gifts you will ever receive from a loved one or family member. Receiving such a gift, though, can sometimes come with its own set of fees and problems. Specifically, the time and cost of maintaining the property, as well as any taxes and levies that may be associated with it. Of course, the property's kind, location, and value can all contribute to the previously mentioned headache.

One of the most typical issues that everyone who has inherited property has is whether they should keep or sell the property. The appropriate response to that question is "It depends." It depends on a variety of factors, including your goal for the property, the (opportunity) cost of selling it versus keeping it, the type of property (commercial, residential, or farming property), and the cost of keeping it long-term versus any potential revenue it could generate, among others.

After evaluating these and any other pertinent concerns or circumstances, it will be up to the inheritor to determine the best course of action, possibly with the assistance of an experienced estate planner.

A Property Inheritance: A Double-Edged Sword?

There are numerous reasons why the blessing of inheriting a property can become stressful, to the point that some individuals may even label it a 'curse.' The difficulties primarily concentrate on the following aspects:

Financial and legal responsibilities: This largely comprises any debt obligations, such as a mortgage, that may be tied to the inherited property. It could even be a loan taken out and securitized by the property. Legal concerns or duties, on the other hand, may involve instances in which property is co-inherited, such as between brothers, and working together to find a consensual conclusion becomes a nightmare.

Federal estate taxes and property taxes are examples of tax responsibilities. Once a property is inherited, it is the responsibility of the inheritor to keep up with the taxes. In addition, if the property is sold, a capital gains tax will almost certainly apply.

Maintenance and holding costs: Inherited homes frequently have costly cleanups and repairs before they can be utilized. In the case of specific types of properties, such as a farm or vacation house, such costs may also involve continuous maintenance. Typically, one inherits a home from a deceased parent, family, or friend, and these homes have typically been utilized for several years or decades. This means that the house must be renovated to be in good condition, which is never inexpensive.

What Are Your Alternatives If You Inherit A House?

In general, after inheriting a home, you have three basic options for dealing with your inheritance, which are:

1. Take Possession Of The Property

A house that has held numerous memories throughout the years frequently has great sentimental value, especially if the inheritor previously lived in the house. It is not uncommon for such properties to be inherited and then moved into. Children who desire to preserve their parents' legacy or families that have agreed not to sell their ancestral property tend to favor this option.

Keep in mind that you will need to guarantee that the property is in good enough condition for you to live in (renovation charges) and that moving in may result in an increase in property taxes.

2. Lease The Property

Renting out the home is another viable option. This is without a doubt a wonderful approach to create a passive rental income while still owning the property. Despite this benefit, becoming a landlord comes with duties and expenses such as property repairs and maintenance, annual property tax payments, property insurance premiums, and more.

If you choose this option, you may benefit from tax advantages because the house (not the land) may be taxed as a depreciable asset. You will also have the option of deducting improvements that increase the property's worth. However, there is a caveat to all of these advantages: when you decide to sell, you must pay back the depreciated expenses to the IRS. This essentially means that you will no longer be eligible for capital gains exclusions and will have to pay additional taxes if you ever sell the property.

3. Offer The Residence For Sale

Many people find the legal, financial, and other duties associated with either moving into an inherited house or renting it to be too burdensome. Fortunately, there is always the option of selling the home, and there are normally two approaches. You can sell your home yourself or hire a real estate agent to do it for you.

For Sale By Owner: As the name implies, this option involves the owner handling the entire selling process on their own. As you can expect, this option is not for the faint of heart because there will be numerous moving parts that you will be unfamiliar with.

Some of the things you'll have to do in an FSBO process include performing and supervising the necessary pre-sale inspections and repairs, re-painting the property, conducting property staging, conducting several property viewings, possibly dealing with a real estate lawyer, and being able to properly negotiate with a potential buyer, who will undoubtedly want to get the lowest price possible from you. This may appear to be a straightforward process, but anyone who has gone through it will tell you it is not. Finally, there is always the potential that selling an inherited home for cash will net you less than the property's market value.

Employ A Real Estate Agent: The great majority of people who want to sell their property employ a real estate agent. It is not only the simplest method to proceed, but you are also likely to be better off with this option because the previously described tasks that you would have to handle on your own in an FSBO sale will now be handled by the agent.

Furthermore, when selling a home, a real estate agent typically faces a number of problems. These are difficulties that you might face on your own in an FSBO, and there is a good chance that you will not know how to deal with them. Given the potentially enormous sum of money involved in the transaction, it may be wise to leave it to a professional.

To Summarize

Because the options open to you about your inherited property all have advantages and disadvantages, the choice you make should always be guided by your final goal. While, of course, balancing the positive and negative to ensure that you make the greatest decision for you.