You never talked a lot to your Great Aunt Mary, so you’re surprised when you get the call that she passed away and you’re the recipient of the inherited house.
She lives outside of town and kept to herself, but she also kept the property in immaculate condition with no pets and apparently few visitors. So now that you have this cute bungalow in great shape with a large manicured property, what to do with this inherited house?
There are a few routes you can take when it comes to inheriting a house, and they all have their advantages. Here are 3 of the most popular options…
Sell The Inherited House
Perhaps you already have a house of your own and you’re not interested in maintaining the new property or being a landlord. The option for you is probably to sell it and turn it into cash that you can use for other things like paying down debt or taking that dream vacation.
There’s more good news: you learn that you Great Aunt Mary has fully paid off her mortgage. What’s also good is that the property has gained a lot of value on the market since she bought it based on the appraisal you got.
Now that you know how much the home is worth, you can set the price (with the help of a real estate agent) to stand out from the other properties available in the area. Or, if you don’t want to go through that hassle of preparing the home for sale and reviewing offers, you can find a buyer that can give you a cash offer for the home quickly.
But there are a few things to keep in mind. You’ll need to make sure the mortgage is up to date, and the home insurance is up to date. Make sure there are no outstanding utility bills either.
You’ll need to pay closing costs on the home including real estate agent commissions and lawyer fees.
But wait, there’s more good news: the taxman probably won’t come after you when you collect the money for the property. Or, at least not as badly as you might expect. The IRS doesn’t tax inheritances federally, only the increase in value since you inherited it.
So if the home was worth $450,000 and you sold it for $465,000, then the tax man only considers that you’ve made $15,000 on the deal. However, some states do put a higher tax on inheritances, so be sure to check before you get too excited about keeping all the cash to yourself.
Become a Landlord
You already have a home but you see Great Aunt Mary’s property as an opportunity to make some more money. Since there’s no mortgage on it in this example, almost all of the money you get from a renter will be gravy to you (minus utilities and taxes, of course.)
Unless you’re the type that likes dealing with problems potentially any time of day or has a lot of DIY skills, then you’ll probably want to hire a property manager. They can be the middleman between you and the tenant and perform functions like collecting rent and dealing with grievances if there are any.
If things go south and the tenant refuses to pay rent or you want them out for another reason (they have wild parties every Tuesday night), a property manager is ideal in this situation too. Unless you happen to look intimidating.
The regular home insurance isn’t going to cut it anymore. You need to get the insurance that covers you in the situation that you’re sued by a renter due to injury, for example.
You’ll have to declare your rental income on your taxes but the depreciation on the homecan be used to counteract some of this. However, keep in mind that if you decide to sell the property down the road, you’ll owe back some of the depreciated amounts if you sell for more than the depreciated value.
The home may not be suitable for a tenant, and you may need to spend money upfront for renovations to meet code or make it liveable for another family. Luckily for you, Great Aunt Mary had a second bathroom and kitchenette put in downstairs because she loathed leaving her sofa during her favorite show.
Live in The House
So you’ve been living with your girlfriend for a year in a rental apartment. It has been good, but you’re both starting to look to the future and even talking of marriage.
Slow down there, now she’s talking about having three kids. But how can you fit them all into the 800 square foot apartment you’re in now? It may work for the first little while, but then it will get more challenging.
Good thing that Great Aunt Mary had no kids of her own and liked you enough to give you her house. Suddenly, you’re in possession of a three-bedroom home with two bathrooms, a full kitchen and living room like you’ve never had before!
Luckily for you, there’s no mortgage payments to make. But you’ll still have to consider how much utilities will cost you every month. If you’re used to having your electricity and heating included in your rental fee, then you might be surprised by the bills appearing in the mail.
You’ll also have to consider paying the property taxes, which will vary depending on where you are living.
You may qualify for a capital gains exemption down the road if you decide to sell, meaning you can make up to $250,000 tax-free if you’re filing taxes on your own. The inherited home has to be considered your primary residence, however.
You Have Options
While you’ll miss Great Aunt Mary (or at least the few times you remember spending time with her), you’ll have lots of choices when it comes to what to do with the inherited property.
Whether you choose to live in the home, rent it out, or sell it, you can make money or improve your living situation. If you’re looking to sell it quickly, contact us today for a fair cash offer!