Making the wrong decision when inheriting a property can lead to emotional and financial problems later. After the death of your parents, you’re left in charge of the family home. You’re faced with questions you weren’t prepared for. You don’t know whether to rent, sell or live in the home yourself. If you have inherited or you think you will one day inherit a property here are the four things you must do before deciding whether to sell, rent or live in the inherited home.
- Investigate the mortgage
There is a good chance of inheriting a house that’s paid for, this is not always the case especially if the house is a retirement cottage. Your parents may also have taken a reverse mortgage at their final years to cater for their expenses. Reverse mortgages cannot be assumed. The mortgage can only be assumed if you’re going to live in the house yourself. The banks will require you to refinance the house with your own name before renting it out. If the house has a mortgage you should pay it off yourself else it will be sold to pay back the lender (bank).
- Discuss with relatives
Your siblings may not have a problem if you’re inheriting to live in the house but when it comes to selling or renting it you must consult them. Heirs jointly inherit their parents’ properties. Disagreement arises when one of the inhabitants wants to sell the house while others want to live in the house. To avoid future disagreements put all options on the table and discuss them together.
- Consult a tax professional
Before your inherited home in market consult a tax professional for the current step-up situation. If your parents bought the house 40 years ago for $20, 000 and the current worth of the house is more than the initial cost, let’s say $500, 000 you should pay tax for capital gains. A step up provision allows you to pay the capital gains tax of the difference between the initial cost and the current value when it’s inherited. Without the step-up provision, you will be required to pay tax for the full amount of gain.
- Give the home a physical
If you’re inheriting a home that hasn’t been upgraded for a couple of years you may be required to upgrade it. The house condition may be unsellable, unrentable and unlivable as it is. Before deciding whether to sell, rent or live in it get an inspection to estimate the amount of money you may have to spend to make it insurable.