What to Do with Inherited Property

GTZXCeaM9Ujk6aM9Dc9URhr0GIn most cases, you do not have to pay taxes on real estate that you inherit. Yet, that seems to be the first question that comes to mind after inheriting real estate. According to the Petoskey News-Review in “The pros and cons of inheriting real estate,” the first question that should come to mind is what you want to do with the property.

The estate must pay taxes on any gains or losses after the death of the decedent, if and when they sell the property. The seller will have either capital gains or capital losses, depending upon what the house was purchased for and what it sold for.

Let’s say that Mom purchased the house for $100,000, gave it to her children and then they sold it for $120,000. They have to pay capital gains on the $20,000. When someone dies, heirs get the step-up in basis, so they get the value of the property at the date of the decedent’s death. If mom bought the house for $100,000 and when she died it had jumped in value to $220,000, and then the children sold it for $220,000, there would be no capital gain.

People who inherit property should have it appraised by an experienced real estate appraiser to determine the actual value at the date of death. An estate planning attorney will be able to recommend an appraiser.

One of the biggest disagreements that families face after the death of a loved one centers on selling real estate property. Unfortunately, this conflict sometimes causes families to separate from one another. It would be far better for the family to talk about the property before the parents die in order to work out a plan.

The sticking point often centers on a summer home being passed down to multiple heirs. One wants to sell it, another wants to rent it out for summers and use it during winters, and the third wants to move in. If they can resolve these issues with their parents, it’s less likely to come up as a divisive factor when the parents die and emotions are running high. This gives the parents or grandparents a chance to talk about what they want after they have passed and why.

Conflicts can also arise when it’s time to clean up the house after someone inherits the property. Mom’s old lemon juicer or Dad’s favorite barbeque fork seem like small items, until they become part of family history.

The wisest decision for families with property to pass down to the next generation is to start discussing what is to be done with the it early on before conflict arises.

An estate planning attorney can advise you if you find yourself inheriting property, as well as advise you on creating an estate plan that fits your unique circumstances.

Reference: Petoskey News-Review (June 25, 2019) “The pros and cons of inheriting real estate”

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