Inheriting a house is a stressful and emotionally draining process- especially when the inheritance came from a recently deceased loved one. Deciding what to do with your parent’s house while still in the early stages of grief is difficult, to say the least. However, having access to the right information can help. Read on to learn the steps you should take if you recently inherited a house in Massachusetts.
You inherited your parent’s house, now what?
Suppose you recently inherited a property from your parent. In that case, you are likely feeling overwhelmed by the seemingly endless choices in front of you.
The first things to figure out are:
- What you want to do with the house (keep, sell, rent, etc.)
- Whether the house is paid off or has a mortgage
- If you owe any taxes
If you inherited a house with siblings, things get a little more complicated. If you want to keep the property, you’ll need to buy your siblings out. If you want to sell, you and your siblings will all need to agree before the house can go on the market. It’s essential to communicate with your siblings and come to a decision that you are all comfortable with.
What if you inherited a house you don’t want to keep?
If you inherited a house you are not interested in keeping; two of the most straightforward options are:
- Selling the home: Selling the home is often the easiest option and can be done quickly, depending on the housing market.
- Renting it out: If you don’t want to live in the home yourself but are hesitant to sell, you can turn it into a rental and make an income from it.
What happens if you inherit a house with a mortgage?
If you inherited a house with an active mortgage on it, there are a few things you need to watch out for.
Is there a due-on-sale clause?
If the house you inherited carries a mortgage, it’s crucial to analyze the loan terms. For example, is there a due-on-sale clause? This would mean that the entire balance of the mortgage loan becomes due upon transfer of ownership of the property (such is the case when you inherit the property). A due-on-sale clause can be a problem, especially if you don’t have the money to pay the loan in full. In this case, the best option is to sell the house so you can pay off the loan.
Is it a reverse mortgage?
Another key thing to find out when you inherit a home with a mortgage is whether it’s traditional or reverse. A reverse mortgage is typically only used by older homeowners. The benefit is that it allows people to access the equity in their home over time versus only when the house is sold. The drawback for those who inherit a property with a reverse mortgage is that you might need to pay the back mortgage loan in full within a few months of your parent’s death.
Do you pay taxes on an inherited house?
Fortunately, inheriting a house does not automatically generate a tax bill. Taxes become a factor if and when you decide to sell the home.
How much you owe (if anything) depends on the size of the estate your parent left behind. On the federal level, taxes are only required on estates valued above $11.7 million. However, if the estate doesn’t owe federal taxes, it might owe Massachusetts estate taxes.
Although there isn’t an automatic tax for inheriting property in Massachusetts, a tax applies to estates valued at $1m or higher. The estate itself pays the Massachusetts estate tax- you will inherit whatever is left after the tax bill is settled.
What about capital gains taxes?
Even if you don’t owe estate taxes on the property, you might owe capital gains taxes if you decide to sell the house. Capital gains are taxes you pay if an investment you own goes up in value, whether that’s a property, stock, or other investment. Put another way, a capital gain is the difference between what you purchased an asset for (known as your “basis” in the property) versus what you sell it for. There is a special tax rule known as the “step-up” in cost basis when you inherit a property.
What is the step-up rule?
You may save a lot in potential capital gains taxes due to the step-up rule. When you inherit a house, the basis in the property is “stepped-up” to the home’s fair market value on the date of your parent’s death. You only owe capital gains taxes on any increase in value between the date of death and the date you sell the house. If you sell the home soon after inheriting it, it’s likely the home value didn’t change much- resulting in a low taxable gain.
What happens if your parent doesn’t have a will?
The process of inheriting would be trickier if your parent did not have a written will when they died. According to a recent survey, 68% of Americans do not have a will. If your parent died without a valid will in place, their estate would be distributed according to Massachusetts probate law. Probate in Massachusetts can take up to a year, so it’s best to start the process as soon as possible.
Let us help
Our company prides itself on offering high-quality service and support to our customers. We work with many people who have inherited homes and are well-versed in the different options available.
We might even be able to buy your home for cash without you needing to make any repairs or updates to the property. We work fast and might be able to make a cash offer immediately. Don’t hesitate to contact us for a free, no-obligation consultation at 781-309-7085. We look forward to hearing from you!