Selling an inherited house is not a piece of cake and often entails several processes that can be time- and energy-consuming. Whether you are looking to sell an inherited property quickly or you are considering holding onto it as an investment, there are many factors to consider when navigating the process.
In this article, we will discuss the legal and financial aspects of selling an inherited house in Houston. And that includes the probate process, the fair market value of the property, tax implications of selling an inherited property, as well as the step-up in basis and capital gains tax.
By understanding the steps involved and having the right professionals to guide you, you can ensure that the process of selling an inherited house in Houston is as stress-free and profitable as possible.
Crucial Information to Understand to Sell an Inherited House in Houston
Taxes and Its Implications
The first thing you should be aware of when selling an inherited house in Houston is the taxes along with their possible implications. Owners are responsible for paying capital gains taxes, for example, after selling a capital asset. Inheritors are also obliged to pay taxes according to the Estate and Inheritance Taxes law.
Here’s a brief explanation of how these two tax-related laws work.
Capital Gains Tax
Capital gains tax is a tax on the net profit earned from the sale of a property. When you sell an inherited house, you may be subject to capital gains tax if the sale price of the property is higher than the original purchase price.
However, tax laws vary when it comes to inherited property.
Some may also be eligible for a step-up tax basis. It refers to an increase in the cost basis of a capital asset for tax purposes when it is inherited. The cost basis is the original value of an asset for tax purposes, and it is used to determine the capital gain or loss when the asset is sold.
Here’s how it works:
The cost basis for calculating capital gains tax for inherited property is the fair market value of the property on the date of the previous owner’s death. It means that if the property was valued at a higher price before the previous owner died than when it was transferred to its inheritor, any gain earned on the sale is not subjected to capital gains tax.
Estate Taxes and Inheritance Taxes
Estate and inheritance taxes are taxes that are imposed after an asset or assets are transferred from the deceased person to their heirs or beneficiaries. These two tax laws, although relatively similar, are given based on two varying situations.
Here’s how they differ:
- Estate tax. An estate tax is a tax to legally transfer a property’s ownership from the deceased person to the inheritor. It is imposed on the deceased person’s estate and at the federal level and is based on the total value of the property. The tax rate, however, can vary depending on the state and the value of the estate.
In addition, it is important to note that not all states have estate taxes or inheritance taxes, and the rules and exemptions for these taxes can vary by state.
- Inheritance tax. An inheritance tax is a tax imposed on the inheritors based on the inheritance that they received. It is typically imposed at the state level and is based on the value of the inheritance received. The inheritance tax rate can vary depending on the state and the relationship of the beneficiary to the deceased person.
Overall, keep in mind that there are several tax laws existing today. Thus, it is best to consult with a tax professional to help you understand all the taxes you will have to pay for selling an inherited house.
Aside from taxes, you should know and understand what the probate process is and how it could indirectly influence your right to sell an inherited house.
Essentially, the probate process is a legal procedure that takes place after someone dies. It is the process where the deceased’s assets and debts are identified, valued, as well as distributed based on their will—or following state laws in case the deceased died without a will.
The probate process may or may not affect your right to sell a house you inherited. It is, however, known to be a time-consuming and complex procedure. however. So, indirectly, it can affect your right to sell the house if, say, you badly need cash and the inherited property is the only asset you can sell.
It is because, legally, the property is still under the deceased person’s name unless the probate process is completed.
Lastly, you should know any issues surrounding the property or estate’s title. Inherited or not, you cannot legally sell a property that is not fully paid yet. And, if you are the beneficiary, you are liable to pay it off whether you want to sell the property or not.
In the case that you find that the house you inherited is not yet fully paid and you do not have the money to pay it off, you can do a short sale instead. It is a sale of a property where the proceeds from the transaction are less than the outstanding debts on the property. A short sale can be an alternative to foreclosure, but it requires the lender’s approval.
Selling a house an inherited house is indeed a tough and demanding process. If you want a fast, hassle-free, and reliable way to profit off of your property, then contact Get Your Fair Offer now and consider your house sold!
Get Your Fair Offer is one of Houston’s trustworthy real estate investors. We guarantee to give you the best and fair price offer only, which your property deserves.
Reach out to us now and get a REAL offer! Call us at 281-709-2999.