Real Estate Investing
Inherited a Property? Here Are Your Options
Last Updated Jun 30, 2022
Inheriting a home can be as exciting as it is emotional.
Often, owners inherit property after the passing away of a loved one. Suddenly, they’re navigating the world of homeownership while trying to process a tragic event.
If this is your experience, it’s normal to feel frustrated and overwhelmed. You — and anyone else who’s co-inherited the home — need to decide whether to sell, rent it out, or move in. But how can you make a smart financial decision during such a challenging time?
Only you can decide how best to move forward.
But if you approach this decision with patience and care, you might find owning property to be incredible for your financial health and goals, no matter why you inherited it.
Today, we’re here to explain what your options are after inheriting property, and what key factors you’ll need to consider.
Is the home mortgaged?
First things first — is the home paid off, or is there an outstanding mortgage?
This is the biggest variable that determines how you’ll proceed. The first thing you should do after inheriting a home, if its mortgaged, is get in touch with the loan provider.
Here are a few immediate questions to ask:
- Does the mortgage have a co-signer? If so, they will be required to keep making the mortgage payments.
- Does a surviving spouse live in the property? If so, they can typically keep making payments, whether or not they were on the original loan.
- Will the lender allow you to take over the mortgage? Some loans allow the transfer of monthly payments, known as an assumable mortgage. Others will require it to be paid off in a lump sum.
If there’s no co-signer or surviving spouse, you’ll need to assess whether you can pay it off yourself.
If you can afford to pay off the outstanding balance at once, doing so is the best choice — and depending on your lender, may be the only option.
Assess whether the homeowner took out any life insurance or mortgage protection insurance policies. If they did, you may be entitled to a payout that could cover the remaining cost.
If the home’s mortgage is assumable, you may be able to take over monthly mortgage payments. You’ll need to discuss the details of the loan with the provider, to figure out if this is an option for you.
Be sure to take the mortgage into account when you’re assessing whether to sell, rent out, or move into the home. If you can’t cover the assumed payments, or the lender won’t let you take them over, selling the home may be your only option.
Will you need to pay taxes?
When you inherit a house, it adds to your wealth! That’s a good thing — but it does mean paying some additional taxes.
Generally, you’ll want to consider capital gains and estate taxes when you’re inheriting a home. But the good news is that there are exemptions from both taxes that can greatly reduce, or even eliminate, the costs you need to pay.
In the United States, only estates worth over $11.7M are subject to federal estate taxes. State estate tax thresholds vary, but they’re typically high as well.
So, if you need to pay estate taxes, consider yourself lucky. You’ve inherited a very valuable property!
There are also strategies to reduce what you owe in estate taxes, such as establishing a trust. If the estate is inherited by a surviving spouse, they are generally exempt, too.
Capital gains tax
You’ll only need to pay capital gains tax once you sell the property you inherited. Capital gains is charged on the rise in value (the capital gains) between when you acquired the home, and when you sold.
There are some exemptions to know here, as well. But importantly, they typically apply only if the home is your primary residence. If you’ve inherited the property, that is less likely to be the case.
Typically, your first $250,000 of capital gains are tax-exempt, or $500,000 for a married couple. But again, that only applies if the home is your primary residence — meaning you’ve lived there for two of the last five years. Gains above this threshold will be taxed like income, dependent on your income tax bracket.
It’s safest to assume that unless you move into the inherited home and live there for multiple years, you will not be eligible for a capital gains exemption when you sell.
Rent, sell, or move in?
After assessing the mortgage and tax situation, it’s time to consider how you’ll move forward. After inheriting a home, you have three options — sell the property, rent it out to new residents, or move into it yourself!
If you need housing, or you’re looking to improve your housing, this can be an ideal option. It’s tempting to see an inherited home as “free housing.” But homeownership is never free, even if the home is completely paid off.
Start by assessing what you’re paying for housing now. Are you renting, or living in another property you own? If you moved into the inherited house, what would you do with that property?
Then, consider the combined cost of property taxes, insurance, maintenance, and mortgage payment at the inherited home.
Compare the two costs, as well as the positives and negatives of both properties. Which choice works best for your lifestyle, goals, and budget?
Sell the home
If you don’t need housing and liquidity is a priority, you may choose to sell the inherited home.
Research sale prices for homes in your area, and the general state of your real estate market. Are homes selling quickly? Are they closing at, above, or below the asking price?
You’ll also need to account for closing costs, as well as the outstanding mortgage balance if you have one. How much will those costs eat into your profit?
Listing and selling a home can be a complex undertaking. To get the best possible price, consider working with a realtor who’s an expert on your local market.
Rent out the home
If you can find the right tenants, renting can be an exceptional way to earn more money from your home. Instead of a single sale price, you turn your inheritance into a long-term income stream.
Just as you’d research real estate in your area, you should also get to know your local rental market. Is there a high demand for rentals in your area? What kind of tenants is the home best suited for — singles, couples, or families?
Run the numbers carefully. You need to understand what your local market will allow you to charge, and whether that price can cover your mortgage payment and other property expenses.
Before pursuing this option, make sure you understand the cost and time associated with owning a rental property — many owners underestimate how demanding landlordship can be.
Don’t go it alone
Whatever option is right for you, you need expert advice to make a smart, informed choice.
You likely already know that working with a real estate agent is crucial should you choose to sell. But if you decide to rent, you should also consider working with a rental partner.
The right rental partner can help you find the right tenants, secure the best possible rent, and keep costs down by connecting you with trustworthy, well-priced maintenance professionals.
Traditional property management companies have a bad reputation — and for good reason! These companies’ inefficient, low-tech way of working, leading many owners to feel they’d be better off on their own.
In contrast, Belong is bringing renting into the modern day, making it easier, friendlier and more efficient for both owner and residents. Find out if your home qualifies today.
About the author
Afton Brazzoni has been a storyteller since childhood, when she wrote her first "book" about horses in a hardcover notebook—in pencil. Now with nearly 14 years of experience as a professional writer, her work has been featured in numerous publications across North America and Europe. As a former reporter, Afton takes a journalistic approach to creating original, expert-level content.