Everybody dreams of some far off distant relative that leaves them a generous inheritance. Chances are that will never happen except in movies.
What could happen is a grandparent or parent passes and leaves the house in a will to you or other relatives.
In this case, you could make out very well or they could simply be passing down a headache to you. It all depends on the situation.
Whichever the case may be, there are some things you’ll need to be prepared for when inheriting a house. It is not like buying your first house and may not be at all what you were hoping.
In this article, I will go over some of the things you need to know when you inherit a house.
If you sell it
In many cases, an inherited home is not a windfall of cash. In fact, chances are pretty good that the house will be in ill repair if it belonged to an old person. After a certain age, many people are not capable of maintaining their house and it begins to accumulate expensive problems.
You may want to get rid of the house instead of fixing it up and living there yourself as you may find it to be a very expensive endeavor.
One of the problems, however, is that if you wait too long to sell it, you will pay capital gains on any value it accrued in the time from when it became yours until the point it sold. It is a good idea to sell it as quickly as possible.
We Buy Ugly Houses are house flippers and will pay cash to take your house and fix it up to be able to sell it for a profit later. If you are in a rush, and you should be, then this is a good option.
If you don’t mind paying a bit more in taxes, or if the house is in decent condition, then you can do some repairs or updates. Usually, there are cosmetic issues since an older person last renovated it decades ago so it simply looks dated. New appliances, a paint job and new carpet can add a lot of value and doesn’t take too much work.
Rent it out
If the idea of passive income has you intrigued, then owning a rental property could be a good idea. Now, it can also be a huge headache when you have tenants calling you at all hours of the day and night for problems that need attention.
And, if you end up with bad tenants they can do a lot of damage and even skip paying the rent on you.
Though, in the right area where rents are high and if the house is in very good condition, you can pay a property management company to handle everything and you’ll still make money.
Make sure you have all the right insurance in place so you don’t end up with any surprises and it could end up being a very good deal.
Research your taxes
Inheriting a home can end up putting you in a complex tax situation. It can work for or against you, however.
In some cases, you can sell it and report a loss on your taxes even if you didn’t actually lose any money. When you inherit a home, the value that you gain is usually calculated by what the fair value of the home is.
In some areas, this value can be quite high. If you sell it for less than the value of the house you can claim a loss.
Where it gets tricky is that only $3,000 can be counted as loss no matter what the actual number was. You’ll need to apply any losses over that amount towards future tax returns.
What about siblings?
If you are not the sole inheritor, then this is where things get very complicated. Let’s suppose you and a sibling both inherited the house.
Any of the possibilities listed above will have to be negotiated and agreed upon. If you want to live there, then you’ll have to pay half of the value to your sibling, or vice versa. And if you both want to live there then hopefully you’ll be good roommates.
Renting it out and splitting duties, revenue and expenses further complicates the complexity of having a rental property.
Tread carefully no matter which way you are leaning as times like these can strain a family relationship.