What Happens When You Inherit a Home?
Inheriting a home is a lot different than inheriting furniture or a car, and it can be a complicated process while also going through grief. Those who know they are in line to inherit a home should know what will happen with it before their loved one passes in order to relieve excess stress they may feel later on. Here is what to keep in mind when inheriting a home.
Taxes on Inherited Properties
Most people have heard of capital gains tax and know that it can apply to large inheritances like a home. Because of this, people may be concerned that they don’t have the money to pay for their taxes, but this isn’t exactly how capital gains taxes work. Instead, capital gains taxes are only paid after selling an investment property, so they won’t have to pay if they choose to keep the home. If someone does choose to sell the home, then the taxes are calculated using only the difference between the value of the home when it was inherited and the official selling price. For example, if someone inherits a fixer-upper and does a lot of renovations to boost the value, they will only be taxed on the added value of the home.
Inheriting With Multiple People
In some cases, one home will be left to multiple people, such as parents leaving their home to their three children. In this case, everyone will need to come to an agreement about what will be done with the home. In cases where everyone does not unanimously agree, they can try to find a solution in another way. For example, if two people want to sell the home but the third wants to keep it, the one who wants to keep the home for themselves can agree to buyout the others’ shares of the home to gain full ownership. This agreement work because it means everyone gets what they want: the two siblings who wanted to sell get money, and the third gets the home they wanted.
If the Home Still Has a Mortgage
If the original owner of the home never paid off their mortgage in full, then it can make inheriting the home a bit more complicated. There are a few options someone can take based on the mortgage and how much is owed on it. For example, if the original owner used a reverse mortgage, under normal circumstances, the lender would require that the loan be paid in full before the owner moves out of the home. Instead, the person who inherited the home will be given a set amount of time to pay the loan off. They can pay off the loan either their own money, by selling the home and using the proceeds to pay the loan, or even by taking out a new loan under their own name.
It’s difficult to lose a loved one, but the legal process can proceed smoothly by knowing what is in store when inheriting a home. Being familiar with this process beforehand can help relieve stress down the road.