Considerations When Inheriting a House
Sometimes inheriting a house is more of a burden than what it is worth. Receiving a home for free doesn’t mean all expenses are paid for, and often means burdensome decisions will need to be made during an emotionally painful time.
Not only will you be forced to deal with cleaning out the home, removing your loved one's personal belongings, but you'll be faced with important financial issues as well. Will you sell it? Move into it? Rent it out?
Inheriting a house comes with additional expenses that may impact your decision, and unfortunately, you may not have much time to decide.
Maintaining Your House Inheritance
If you don’t want the property to fall into disrepair quickly after inheriting a house, you’ll immediately need to evaluate key elements, including utilities, housekeeping, and landscaping. Especially in Massachusetts, utilities like gas, electricity, and water will need to be maintained on inherited properties. This will ensure there are no freezing and bursting pipes in our harsh New England winters. If you’d rather not do this, you may need to hire a company to “winterize” the property.
Similarly, you may also need to hire a landscaping company to maintain the exterior of the home and arrange for periodic housekeeping to ensure pests and bugs aren’t taking over the inside of the property.
Property and Inheritance Tax
Property taxes when inheriting a house are another important consideration. Property taxes will still be owed, and you’ll be fully responsible for paying them. Coupled with the utilities and/or upkeep expenses of your “free” home, selling may be the best way to avoid long term expenses on this unwanted property.
Inheritance tax is another important concern. Your property will be assessed at the fair market value at the time you’ve inherited it. If you hold on to it for a few years, you’ll pay capital gains on the sale. For instance, if your property was assessed on a tax basis as worth $220,000 in 2016 and you sell for $250,000 in 2019, you’ll pay capital gains on the $30,000.
Fortunately, inheriting a house doesn’t always equal a headache. Selling the home for cash now, at or just below the tax basis assigned on the day you inherited it, can save years of unexpected expenses, headaches, and long-term tax burdens.