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What To Do With An Unwanted
Windfall or Nightmare?
"I was thrilled when granny left me her home, until I understood the consequenses."
Inheriting a property doesn’t always feel like a windfall — especially when it turns out to be real estate that you don’t want or can't afford.
If you live in a state such as New York, with an inheritance tax on property, you might not want to deal with a tax bill, or you’re dreading the hassle of selling the property. There’s also the possibility that you have no idea what to do with it.
The reason you don’t want to keep an inherited property really doesn’t really matter. The important thing to know is that you have options.
You simply have to learn how to navigate a tricky inheritance situation.
While we can't possibly cover every scenario here, this short presentation is intended to let you know you don't need to deal with this alone. You do have options. In fact many of them.
Once you have read the following pages, get in touch with us here at GPS. We will do our utmost to answer any questions left unanswered and point you in the direction of all the service providers you'll be needing as you traverse these trying times.
Take time to take a breath...
The loss of a loved one can be an emotional time Add to that the fact that 90% of Americans don't have a fully vested trust when they pass and their entire estate has to go through probate.
First of all you shouldn’t rush any decisions about the property you’ve inherited. In New York State, there is usually a 30-90-day waiting period before a home can be sold. During that time, we recommend working with an attorney and a team of real estate professionals to evaluate your options before taking any action.
How much is the property worth? How much is owed? What are the taxes, and when are they due? What is the condition of the property? Does it need maintainance? All are questions you need answerd, because then you can make an informed decision as to how you move forward.
The owner of the estate may already have had the property appraised, but that appraisal might not reflect the current market value. A Realtor can establish the actual value which might help you decide if you want to do.
Remember, however, that you’ll pay the price for a smoother, more convenient process. The Realtor will get a commission — typically 5 to 6 percent of the property’s sale price.
And for all the convenience the Realtor provides, you might still have to take steps to get the best price possible, such as disposing of personal contents, making repairs, adding fresh coats of paint and touching up the landscaping.
You can turn your unwanted inherited real estate into cash by selling it. To get top dollar, enlist the help of a professional. “Ideally, you want to go through a Realtor because a trained real estate professional will get you a higher price,” said attorney Steven Landau Esq., of Landau Real Estate Associates, New City, NY.
Selling the property with a Realtor who is probate specialist will also make the process easier, especially if you don’t live in the same city or state where the property is located.
Commission & Other Costs
Sell with a Realtor
Selling an inherited property to a real estate investor is another quick way to make money without having to spend your time and expenses of preparing the property for sale.
An investor will buy your home ‘as-is,’ allowing you to walk away from the property without making any repairs, Some investors will even let you sell without cleaning out the inherited house. You can keep what you want and leave the rest.
If your goal is to sell your inherited property quickly, you could unload it at auction. You might not get as good of a price as you would by listing it with a Realtor. But you can save yourself some of the hassles of making it appeal to buyers by selling it "as-is" at auction.
The downside is that the majority of aution houses demand a substantial upfront payment, which they use for their marketing costs. If no buyer materializes, you lose that money regardless.
Sell To An Investor
Sell As-Is Auction
If you don’t have the time nor inclination to deal with tenants or if the property is in another state, we might recommend using a property management company. Expect to pay a management company about 10 percent of your rental income.
If the property you inherit is in good condition, you could turn it into rental property and create a stream of passive income. However, the rental income might not be that passive if you plan to manage the property yourself.
Property Management Company
Rent the Property to Others
If you live in the property you’re flipping for at least two years before you sell it, up to $250,000 of the profit is tax-free if you’re single, and $500,000 in profit is tax-free if you’re married and file taxes jointly. Otherwise, you’ll have to pay capital gains tax of up to 20% on the profit.
If you inherit property that isn’t in good condition, you could take advantage of the opportunity to fix it up and flip it for a profit. You stand to make the most money if you’re the DIY type and can renovate the property on your own.
But Remember Capital Gains Tax
Fix Up the Property and Flip It
You might be able to make more money from your inherited real estate by turning it into a short-term vacation rental by listing it on websites such as Airbnb or HomeAway. Data from Mashvisor, a real estate data analytics company helping investors find lucrative traditional and Airbnb rental properties, shows that the return on investment for short-term rentals exceeds the rate for traditional rentals,. However, you'll have to check the regulations in the location of the property to make sure that vacation rentals are legal, and to become aware of any existing restrictions or fees
You’ll also need to invest in furniture, linens, plates, utensils, and other necessities for guests.
A property manager will take a large piece of the rentals, plus cleaning services can be very hit and miss.
So even though the return can be greater on vacation rental properties, the income isn’t as guaranteed as it is with long-term rentals.
Renounce or Disclaim the Property
If you don’t want to deal with the hassle of selling or renting the property, you can reject it by renouncing or disclaiming it. No one is required to accept an inheritance. It can feel strange contemplating the rejection of an inheritance, but it is more common than you think.
With a renunciation or disclaimer, it’s as if you had died before receiving the inheritance, and the property passes to the next person in line to receive it as spelled out by the original property owner’s will or state law. That means that you have no say over where the property goes. Typically, you have a certain amount of time in which you can disclaim inherited property, and you have to record the disclaimer with the county recorder of deeds office.
It’s always best to work with an estate specialist attorney to disclaim property.
Be aware, though, that the IRS will view your bequest of real estate as a gift, which means you might be subject to the federal gift tax. If the value of the property you gift is more than $15,000, you have to file a Form 790. That doesn’t mean you’ll owe taxes, though, unless you transfer property worth millions of dollars. Although the annual exclusion amount is $15,000, the lifetime exclusion currently is $11.4 million.
If you don’t want inherited property but want to have a say in who gets it, you can use a quitclaim deed to transfer the property to someone else. A quitclaim deed is a legal instrument that is used to transfer interest in real property very quickly and easily, No money is involved in the transaction, no title search is done to verify ownership, and no title insurance is issued. Basically, you give away the property with no warranties.
...But Remember Gift Tax
Quitclaim Deed Transfer
You could donate property and get a tax deduction. If you itemize on your federal tax return, you can claim a deduction for the price at which it would sell. You’ll need to get an appraisal by a professional appraiser and file Form 8283 if you claim a deduction for a donated property of more than $5,000, according to the IRS.
You could simply do nothing. If you don’t pay the property taxes, the city or county taxing authority could sell the tax lien. The person who buys the lien can try to collect it from you or foreclose on the property.
However, you’re taking a risk by neglecting the property and letting it go to a tax sale. If it’s an old building, and someonesuffered an injury on the property, you could have a liability issue. You could be sued and held liable, which could end up costing you money.