Once that probate house has finally become yours, figuring out what to do or how to use it can present not only financial but also emotional issues. In particular, the financial implications can be challenging. It could become even more complex if you have co-inheritors. For starters, you need to be aware of the fact that for tax purposes, Uncle Sam views your probate house as an asset just like inherited stock. As such, you qualify for a tax benefit.
For example, if you decide to have the house sold — whether now or some years later — any capital gains on it will be based on the “stepped-up” cost of the house — the fair-market property value when your benefactor died — and not on its original purchase price.
Check out your options on what to do with your probate house on our latest blog!
Moving into your probate house could translate into a property tax increase for you. This is because the house will not only be worth more because of its new stepped-up value but also due to the fact that any special property tax break in place for senior citizens are likely to disappear. You will need to qualify for such breaks on your own merit.
If you opt to move in, the tax structure changes so long as you stay there for a minimum of two years. This means that when eventually you sell the probate house, you will be granted the existing capital gains exclusions available for primary residences. There is yet another advantage that comes in case you later sell the house and by then it has appreciated in value.
Check out Diane Schmidt’s article “4 Questions to Ask Yourself Before You Move to a New Home” and she explains the questions you need to ask before moving. What will I miss? What don’t I like about my present situation? If you move, what will change? What about the practical? This should help guide you on moving into the inherited property.
If your executor feels it makes financial sense to rent out your probate house and has the permission to proceed, they can put into place the necessary arrangements for renting it as well as sign the contract on your behalf.
Turning the inherited home into a rental property also comes with a big tax benefit. This is because the depreciation expense serves to reduce the amount of your total taxable rental income. For tax purposes, your house is viewed as a depreciable asset and therefore, a certain portion of its value becomes deductible annually. It’s also possible to get depreciate improvements such as a new roof, provided such extend the life of the property or add to its value.
The catch here is that you’ll end up having to pay back to the IRS that depreciation value equivalent in case you decide to sell your inherited house. You will owe the taxman more in terms of capital gains and also, you won’t be eligible for the capital gains exclusion as the house is longer your principal residence.
Sell The House
Choosing to have an investor in the real estate industry to assist in solving your real estate problem saves time saver and relieves you of much stress. If you are contemplating selling the probate house, now or sometime in the future, ensure you have acquired the Letters Testamentary if you are the Executor or if an administrator, the Letters of Administration.
These Letters of Testimony give you as the Personal Representative the legal right to transfer or sell a property to a new owner. Without these documents, you legally cannot contract to sell or sign a listing agreement.
In conclusion, let us point out that for a successful short sale there are 5 things to always remember:
- The taxman will still come for his dues.
- Your property should at least go for 90% of its appraised value.
- Investigate the mortgage least it carries a reverse mortgage.
- Run a thorough physical.
- Involve family members to avoid domestic legal domestic wrangles later.
If you are looking to sell a probate house, click here for a fair cash offer from us. House Heroes guarantees fair cash offers, fast and easy closing, and honesty and respect. Referral to a probate attorney? Help paying litigation fees or closing costs? Need a buyer willing to hang in for the “long haul” of the legal proceedings without disappearing? House Heroes will get the job done!