If you are faced with this major financial decision while you are grieving, it may be one of the most difficult. How do you know whether you should keep the property or sell it?
When families unexpectedly inherit real property, such as a house, there are a surge of emotions that can cloud their judgement or lead them to decision they may regret in two years.
Wait for the storm to pass
If you have the luxury of time, take it. Wait to make your decision until you feel any anger, hostility, or overwhelming sadness pass. It is always best to move forward when you are calm and confident. There may even be financial benefits in the future.
Keep the property
If the property was your childhood home or a treasured vacation property, your first instinct may be to hold tight to the land as part of your family's legacy.
Even if you are not sure you want to keep the property for a decade or more, consider hanging onto the property for two years.
The 2018 capital gains tax exemption applies to property owned for at least two years
- Joint income <$479,000, you will only be taxed on about 15% on the "capital gain"
- (difference between the property's original purchase price and the current retail value.)
An attorney can always best explain local tax laws.
Rent the property
A second option would be to rent the property.
- Provides monthly income to split among beneficiaries
- May require a property manager (charge approx. 10% of monthly rent. Expect additional fees)
- May require appliance upgrades, home inspections, etc.
Sell the property
This option is best for those properties on which you cannot afford the additional tax burden or emotional burden.
- If beneficiaries disagree to keep or sell, one may buyout the other's portion
- Promissory notes: one beneficiary pays the other in installments instead of lump sum
- If there is considerable debt owed on the house, consider speaking to a short sale lender
- Sell house as-is
- If there is a reverse mortgage, you may only have 6 months to pay the debt.
- You will have to clear the house, pay for necessary upgrades, contact a realtor, etc.
Ultimately, what you decide to do with the house can be determined by one of two equations. If the financial expenses outweigh the value of the house, consider selling it. If the house brings more joy to your life than painful memories, consider keeping the house as a legacy for the next generation.