Should you sell an inherited property? If you’ve inherited a property, you might be considering moving in right away or renting it out for some steady income. However, if you’d prefer to sell an inherited property instead, the process can be quite challenging.

Selling a home is never simple, and dealing with the decision to sell an inherited property can introduce additional complexities. Factors such as the exact language in the will and any existing mortgage can affect how you go about selling the property. The process to sell an inherited property is made even more complex by the fact that oftentimes, ownership is divided among siblings or other relatives. If you are expected to inherit a property, or need to walk a loved one through the process, the following can help.

Can You Sell Inherited Property?

Yes, you can sell an inherited property. The process to sell an inherited property is largely similar to selling one you purchased yourself. You can choose to sell it to investors or work with a power buyer to facilitate the sale.

However, there may be different tax implications associated with the decision to sell an inherited property (we’ll cover taxes in more detail later), which could impact your timing for selling. Additionally, the house might need extra attention before it’s sold, such as clearing out belongings, addressing any liens, or making repairs if the previous owner was unable to maintain the property.

What occurs when you inherit a house?

When you inherit a house or other property, the specific process can vary based on your location and the value of the deceased person’s estate. Typically, the property will need to go through probate before you can receive it as an inheritance, even if the house is fully paid off, depending on state laws. In some situations, ownership may transfer via a transfer-on-death deed or according to the terms of a trust instead.

Selling an inherited house

The specifics of how you acquired the property and the type of ownership you hold significantly impact how you sell an inherited property. Additionally, keep in mind that as the seller, you’ll be responsible for certain closing costs before you receive any profit.

If you are the sole owner

The process of selling an inherited property is simpler if it was bequeathed to you individually or if both you and the deceased were listed as owners. If you were tenants in common or joint tenants with right of survivorship, you won’t need to deal with probate or other legal procedures— you’ll automatically become the sole owner of the home and can sell the inherited property as you choose.

If you co-own it with others

In some cases, you might inherit the home along with other family members, such as siblings or cousins. When this happens, all co-owners must make decisions about the property together.

Combining family matters with financial decisions can be stressful, especially during an emotionally difficult time following the loss of a loved one. If the home has sentimental value, such as being your childhood home, it can make the situation even more complex. It’s important to collaborate with your family to ensure everyone is in agreement and to avoid potential conflicts.

Another option, particularly if none of the heirs wish to live in the property, is to buy out the other heirs. Offering to purchase their shares can simplify the process and allow you to become the sole owner, making the eventual sale more straightforward.

The probate process

When someone passes away, all their belongings become part of their estate. The estate typically goes through probate, which is the legal process for distributing property, money, and other assets after death. During probate, the executor or personal representative manages all the paperwork, ensures that the estate’s debts are settled, handles any required tax returns, and ensures that the estate’s assets are distributed to the appropriate beneficiaries. Depending on the complexity of the estate, this process can take several months or even years. If there are disputes regarding the inheritance of assets, probate can be further prolonged and costly.

Once the inheritance process is complete, the title of the house is transferred to the new owner. This person assumes all responsibilities for the property, including maintenance and any debts such as an outstanding mortgage. In some cases, the house may be inherited by multiple individuals.

Selling a house during probate

Crucially, any debts owed by the estate must be settled during probate before the estate can be distributed to the heirs. Sometimes, this may require the estate’s personal representative to sell property to raise funds for debt repayment. If a house is sold during probate, it will not be transferred to the intended heirs. Additionally, any taxes due will be addressed on the estate’s income tax returns. Typically, mortgages on inherited properties do not need to be paid off during probate.

Is there still a mortgage on the home?

Whether the inherited home has a mortgage or is completely paid off also affects the process of selling it.

If there is a mortgage

If the inherited home has a mortgage and the deceased was the sole borrower, the estate is responsible for continuing to make the loan payments. This means the executor must figure out how to cover the mortgage using the estate’s assets.

When you inherit a home with an existing mortgage, you will need to take over the mortgage payments yourself. Contact the lender to understand how to transfer the property and loan into your name—this is a crucial step before you can sell the home. Once the mortgage is in your name, you can proceed with selling the property.

If there is no mortgage

If there’s no mortgage on the home, the process is more straightforward: you don’t have to worry about loan payments. However, as the new owner, you will still need to cover property taxes and utilities. (The estate might provide funds for these expenses, so it’s worth checking.)

You’ll also need to work with local property records offices to transfer the deed into your name and set up utility accounts under your name. Once these steps are complete, you can proceed with selling the home.

Tax consequences of selling an inherited property

Selling property for a significant profit can potentially trigger capital gains taxes. However, when you sell an inherited property, it’s different because, although you now own the home, you didn’t originally purchase it. The tax implications largely depend on the original purchase price of the house and how much its value has increased since then.

To determine if you’ll owe capital gains tax when you sell an inherited property, you need to calculate your profit. This involves subtracting the cost basis (or original cost) of the home from the sale price.

Normally, the cost basis of a property is the purchase price plus any major improvements made. For inherited properties, however, the cost basis is generally “stepped up” to the fair market value on the date of the decedent’s death. (In some cases, it could also be based on an alternate valuation date, such as when the executor filed an estate tax return.)

Find Out More

The process to sell an inherited property can be somewhat challenging to navigate, particularly in cases where ownership is split. Review the above information as you navigate probate, buyouts, and ultimately the sale of the inherited property. 

If you have an inherited property and aren’t sure what to do next, talk to us. We’d be happy to discuss your options. Reach out to Illinois Real Estate Buyers to get a no obligation cash offer on your inherited property today.