What Happens When You Inherit Property?
What happens when you inherit property with multiple owners?
Property is often inherited through a will, trust, or probate proceeding once a loved one passes away. Inheriting a property poses difficult emotional and financial issues. You can choose to do one of three things with an inherited home: live in it, sell it, or rent it out. The relationship you have with your co-owners will help dictate which option is best in your unique situation. For example, co-owners with an amicable relationship may agree to split the profit from renting out the property. Bear in mind that there are different tax implications depending on what you and your co-owners decide to do with the property.
How do you sell an inherited property with multiple owners?
In a perfect world, all co-owners agree on what to do with an inherited property. Selling the property when all co-owners agree to the sale is relatively straightforward. However, if one or more co-owners refuses to sell, the co-owners who wants to move forward with a sale may do so through a partition action. In fact, the court is so amenable to allowing co-owners to force a sale that it can even order reimbursements for improvements in partition actions. It is highly advisable to speak with a partition attorney to ensure that all paperwork is correctly filed.
What are the tax implications of inheriting property?
Inheriting a property itself doesn’t present a federal inheritance tax, but rather what you and your co-owners decide to do with the property does. You may have to pay capital gains tax on a step up basis, meaning you will only have to pay tax on the difference between the fair market value and the selling price if you sell the home. Consult with a tax advisor or attorney specializing in tax law in your area if you have questions about avoiding paying taxes on inherited property.
