For many, it sounds like a dream come true. A long-lost uncle with no other heirs passes away, only to leave a magnificent beachfront property to you. While nearly everyone would love to inherit a dream home after a relative or close friend dies, the reality is there's a lot of legal action that is required after you inherit property.
To help clear up any questions you might have, we have created a Q&A guide for inherited property:
What options do you have if someone leaves you property from their estate?
When you inherit a property from a relative or friend, you have three basic options available to you:
- Live in the inherited property.
- Sell the inherited property.
- Rent the inherited property to tenants.
Ultimately, this is a very personal decision. You need to consider your financial circumstances and your current quality of life. It is often advantageous to work with your estate lawyer to determine which decision is the best for you and your family at this time.
As an heir, do you get a stepped-up cost basis for inherited property?
Stepped-up cost basis refers to the amount of value a property gained during the course of an individual's lifetime. If your grandmother purchased a home in her 20s, and bequeathed it to you in her will, you do not have to pay capital gains taxes on the property value increase during the course of her lifetime should you choose to sell the home. The only exception to this is if the home was placed in an irrevocable trust prior to your grandmother's death. Property that is placed in an irrevocable trust is not subject to the stepped-up cost basis.
Is inherited property subject to federal taxes?
For the average person who inherits a home from their parents or grandparents, federal estate taxes will not apply. Under current law, federal estate taxes only have to be paid if the estate is valued at $11.8 million for an individual. However, many people who inherit any sort of property will have to pay estate taxes on that inheritance to the state. The amount of estate taxes that must be paid will vary from state to state (California, for example, does NOT have an estate tax), so it's important that individuals work with a qualified local estate lawyer to manage their affairs after they have received an inheritance.
What costs need to be taken into consideration?
Inheriting that mega-mansion on the beach sounds like a dream come true, and you may even inherit the home without a mortgage. However, that doesn't mean that you can now live free-and-clear in this ultimate dream home. Before you decide to reside in an inherited property, you need to consider the other costs that will come along with that new home. Property taxes, utilities and other bills will still need to be paid by you. You may also need to purchase new furniture or invest in home improvement projects or repairs. Inherited property seems like a free house on the surface, but there are generally several significant costs associated with gaining a new home.
If you stand to inherit property, know the law
If you have found out that you have inherited a new home from a relative or friend who has recently died, the best thing you can do is contact an experienced estate lawyer as soon as possible. This will help you get a better understanding of the property you have inherited and the choices that you now face. For more information on inherited property, contact our law firm today.