101 Handbook To Selling Inherited Property: Taxes & Timing
Reviewed by: Brandon Brown
From gorgeous family homes to majestic private yachts, inherited property and inherited land can add considerable value to your estate.
However, sometimes inherited property can be more of a burden than a boon—especially if your primary residence is a considerable distance from the inherited asset’s location.
The good news is selling inherited property isn’t only possible, but it’s also less complicated than you might think.
In this guide to selling inherited property, we’ll cover all you need to know about inherited property transactions. That way, you can rest easy knowing you’ve sold your inherited property for the right price and in the right way.
What Is Inherited Property?
Before demystifying tax codes and timing implications, let’s start with the basics: defining inherited property.
In short, inherited property is any property passed on to you following the passing of an individual. Houses are some of the most common inherited properties. That’s because houses not only have intrinsic value, but they can also have significant financial worth.
However, before selling property held in a trust or inherited property, it must officially belong to you. In other words, the inherited property must go through probate.
The Probate Procedure
Probate refers to the legal process in which a court ensures inherited property goes to the right parties as dictated by the will.
While the probate process can vary based on the estate’s size, value, and the number of
beneficiaries, the process tends to take between 9 and 24 months and generally follows the same format:1
- Beneficiaries file a petition to initiate the process.
- The probate court issues bonds, administration letters, and notices to creditors.
- The probate court takes inventory and beneficiaries pay estate taxes.
- The final petitions occur and beneficiaries are paid out.
If, after the probate procedure, the house is placed solely in your name, you’ll be able to sell the property. However, if several beneficiaries are awarded the inheritance, you’ll have to first agree to sell the home.
Selling a Shared Inheritance
Selling an inherited house is straightforward if you’re the only heir. However, if you share ownership with your siblings or other beneficiaries, you’ll have to come to an agreement as a group.
This agreement can take several different forms:2
- Everyone agrees to sell the home – The easiest (and most family-friendly) way to sell a shared inheritance is for everyone to simply agree to a sale. In this scenario, all parties work together to sell the property, and the profit is split evenly.
- One party agrees to buy out the others – Let’s suppose that out of your three siblings, you’re the only one who lives closest to your family’s beautiful property on Lake Michigan. What’s more, you’re the only one who wants to keep the home in your family, at least for the time being. In this scenario, you could buy out your siblings’ ownership stakes and sell the property at a later date.
- A partition action is filed and the court enforces a sale – To return to the above scenario, suppose that your three siblings are adamant about selling the Lake Michigan property, but you want to keep it in the family. However, you don’t have the funds to buy them out. In this scenario, your siblings could file a court petition to have the property sold. If the court agrees, the property will be listed for sale.
Whether you’re the sole owner of the inherited property or you share ownership with another family member, selling the home could require you to pay several taxes. We’ve covered the most important taxes below.
Taxes on Inherited Property Sales
So, do you pay capital gains on inherited property? When you sell an inherited property, it is likely. You might also have to pay an inheritance tax, estate tax, or property tax depending on the state you live in.
Fortunately, both of these taxes aren’t as high as you might think.
Does this have you thinking, how can I avoid capital gains tax on a home sale? You may be able to avoid them altogether—either through your tax bracket or by selling your inherited real estate to a buyer who’ll pay you full value for your home and split any profits with you from a later sale.
Capital Gains Taxes
A capital gains tax takes the profit made from the sale of a home. For example, if your Lake Michigan home is listed at $400,000, but you sell it for $450,000, you’ll pay taxes on the $50,000 profit.
That said, the amount you’ll be required to pay depends on two factors:
- Your tax bracket – Your income tax bracket is used to determine your capital gains tax. Tax brackets typically run from 10% to 37%. Thus, if you fall into the 20 percent tax bracket and you own the Lake Michigan property for less than a year before selling, you’ll be required to pay $10,000 in capital gains taxes.
- Length of ownership – When determining your capital gains tax, the IRS takes into account the amount of time you owned the property. If you owned the property for less than a year, you’re considered a short-term owner, and your capital gains tax depends on your tax bracket. If you have owned the property for longer than a year, your capital gains tax also depends on your tax bracket, but it’s capped at 20%.
Inheritance and Estate Taxes
Although not considered taxes on sales, inheritance and estate taxes are sometimes levied on inherited property after the probate process.
The good news is only a handful of states impose inheritance taxes. What’s more, most of these states prohibit inheritance taxes as long as the deceased’s immediate family inherits the property.
Estate taxes are also occasionally levied. However, these taxes are only imposed on the wealthiest estates, meaning most people will be able to avoid them.
How To Sell Inherited Property
Now that you know the probate process and associated taxes, let’s dive into the various ways to sell your home. These home selling options include:
- Sell to an off-market cash buyer – Some buyers specialize in paying cash for your home and flipping it for profit. However, not all off-market cash buyers are created equally. To ensure you receive the fair value for your home, choose an off-market buyer who’ll split any profits from the sale with you and who won’t charge you any closing fees or commission costs. The best off-market buyers can even close in as little as 72 hours. Learn more about what it means to sell off-market with our seller’s guide to off-market homes.
- Sell the home yourself – If you have the confidence to sell your real property for maximum or fair market value (and you have the know-how to do so), selling your home yourself exempts you from paying realtor commission fees. It also gives you way more control over the entire process. What’s more, the vast majority of for-sale-by-owner homes sell in two weeks or less.3
- Hire a real estate agent – Hiring a real estate or a personal representative agent could reduce the stress of selling an inherited home. That’s because real estate agents can handle the often complex legal language and tax codes associated with inherited property. It typically takes 65 days for a realtor to get an offer on a home.4
When asking yourself, “what’s involved in selling my inherited property,” it’s helpful to think about your motivations. In some cases, hiring a real estate agent may be the right fit.
However, if you want to sell your home quickly while retaining as much profit as possible, selling your home yourself or selling to an off-market cash buyer could be the better move.
When To Sell Your Inherited Property
Selling inherited property can be difficult from an emotional perspective. On one hand, your property is likely infused with memories of playing hide-and-seek, running down the halls, and sitting down to family dinners.
On the other hand, it may not make much sense from a financial perspective to keep the property.
Here are a few factors to think about when asking yourself, “should I sell my inherited house?”:
- Location – If you live close to your inherited property, you’ll likely be able to enjoy it throughout the year. However, if you live a considerable distance from the house, you may not be able to spend enough time there to justify its upkeep.
- Condition – Relatively new properties require far less upkeep than houses that are several years old. If your inherited property is quite old and has tons of maintenance issues, it may not make much sense to pay maintenance costs—especially if you rarely use the property.
- Mortgage – If you inherit a property with a mortgage, you’ll be on the hook for mortgage payments. If you’d prefer to sidestep the responsibility of making these payments, it may be best to sell the property.
Again, shared ownership is another factor. If you and your siblings disagree about the property, it may be advantageous to simply sell the house and split the profits.
FlipSplit: Inherit Opportunities, Not Costs
Although inherited properties can pack treasure troves of memories, they can sometimes be fool’s gold—especially if they require extensive repairs. In these situations, it may be best to sell the property.
While you could hire a real estate agent to sell your home, wouldn’t it be better to avoid all those pesky closing fees and commission costs while receiving top-dollar for your home?
At FlipSplit, we think so.
Yes, we buy houses, but in addition to reselling your home with convenience and transparency, FlipSplit will split any profit with you.
Your inherited property has meant a lot to you over the years. Let FlipSplit help you get the value you deserve.
- ProbateADVANCE. The Probate Process. https://probateadvance.com/probate-process/
- Trust & Will. Selling Inherited Property: Can I Sell My Share of Inherited Property? https://trustandwill.com/learn/selling-inherited-property
- Bankrate. How to sell a house by owner. https://www.bankrate.com/real-estate/how-to-sell-house-by-owner/
- Realtor. Steps to Sell a House: How Long Does Each One Take? https://www.realtor.com/advice/sell/steps-to-sell-a-house-how-long-do-they-take/#:~:text=Answer%3A%203%20to%205%20days%20It%20will%20take,agent%20has%20it%20all%2C%20things%20generally%20happen%20fast.
Reviewed by: Brandon Brown
As a long-time Asset Manager, Investor, Real Estate Agent, and Broker/Owner of BayBrook Realty in Orange County, Brandon Brown is one of FlipSplit’s lead Real Estate experts. Having worked on over 2,000+ real estate transactions, Brandon brings a depth of knowledge that ensures clients are appropriately treated with honesty and integrity. His insights and advice have been published in numerous blogs beyond FlipSplit, and he keeps a close eye on market trends and statistics, which are updated weekly on his social media pages. Outside work, you can find him participating and serving at church, cycling, mountain biking, surfing around Orange County and beyond, and enjoying time with his wife and two daughters.