It would be great if inheriting a house really seemed like the windfall that it is so often billed as. Besides the property, you often inherit a legal process you never asked to learn about, an unexpected mortgage or a tax bill to pay, and sometimes a group of co-heirs who don’t see eye to eye on what happens next. If you are wondering how to sell an inherited house, the good thing is that after you piece together all of this, and understand how it fits together, the legal side, tax side, family issue & sale itself, each part becomes easier.
This guide will take you through what needs to happen in order for you to sell, tax implications, mortgage issues if there is one involved, how sibling disputes are dealt with with multiple heirs and the difference between an as-is cash sale and a traditional house listing when dealing with properties that have been inherited.
This article is for informational purposes only and should not be considered legal, tax or financial advice. Because state laws about probate, inheritance and taxes can vary greatly, and depend on individual situations, you may want to consult an estate attorney, a tax professional or your local probate court about just what situation you might be in.
Your Inability to Sell Until Probate Tells You It’s Okay
One of the big surprises to new heirs is that an ownership interest does not automatically transfer on the day a person dies. However, if the house was only in name of deceased (only is), then it usually has to go through probate, the court overseen process whereby it validates will (or applies state law if there’s not one), pays debts and formally transfers property to heirs.
You typically cannot sell the house legally until an executor or personal representative has been named and given authority by the probate court so for example via a Measure called Letters Testamentary or Letters of Administration, etc. If someone attempts to sell prior to that authority being in place, a title company will pick this up immediately. Probate timelines depend wildly on the state and how complicated the estate, which is why we created our guide on how long probate takes to help tackle those details further!
Until the probate matter is resolved, however, the estate remains responsible for ongoing costs related to a property such as property taxes, insurance, and utilities and basic upkeep; an inherited house unused for months can quietly become costly. This is a waiting period which many estates make use of: An executor may prepare property for sale or even have an offer from a buyer prior to the formal closing on probate, and have the finalization of the sale when approved by the court. Our guide on how that timing works when you want to sell a house fast during probate.
The Tax Cost of Selling an Inherited House (with Real Examples)
Tax questions are where a great many heirs go wrong unnecessarily, more nervous, in fact, than the actual rules warrant.
The basis for inherited homes is typically “stepped-up.” Your cost basis in an inherited house for taxation purposes is typically reestablished on the date of death and is usually not what the previous owner paid decades or years earlier. According to the IRS, this stepped-up basis is usually equal to the fair market value of the property on the date of death (or an alternate valuation date in some circumstances), which means you’ll only pay capital gains tax on appreciation that occurs after you inherit it. In practice, this means that many heirs who sell property soon after inheriting owe little or no capital gains tax because the value of the property has had little opportunity to increase much in value above its date-of-death level.
Federal estate tax rarely applies. However, federal estate tax has such a high annual exemption threshold that most estates never owe any. However, there are some state estate or inheritance taxes that kick in at lower thresholds than the federal one, so do not just assume you will not have to pay any tax because it is under the federal threshold; check what your state’s specific rules are.
Getting the valuation right matters. Your basis is tied to what the home was worth at the date of death, so having an appraisal or comparable market analysis from that period gives you something tangible to rely on later instead of piecing together a value years later.
None of this replaces specific recommendations for your property, and basis, date-of-death valuation and state-level taxes can get very complicated very quickly. A tax pro is able to talk through your specific numbers.
A Look at What Happens if Your Inherited House Has a Mortgage
No mortgage evaporates upon the borrower’s death; a mortgage survives as an encumbrance on the property, and someone must deal with it. The truth is, federal law protects heirs a lot more than most people realize.
Many contracts for an ARM have a due-on-sale clause that would typically enable a lender to require full payment at the time a property changes hands. The Garn-St. The GFDA and deposit institutions was amended by the Vaccaro bill so, for example, a lender typically may not trigger that provision if a home passed down to a relative through inheritance.
In general, you also aren’t personally liable for the debt unless you’d cosigned or co-borrowed on the original loan. First of all, the mortgage is against home equity not your personal assets so if you eventually refuse to keep paying, the lender will foreclose on your home but cannot come after any other properties and valuables owned by you.
Federal rules also protect your ability to obtain information about the loan once you have an ownership interest in the property. Mortgage servicing rules do not mandate the lender to evaluate your “ability to repay” before permitting you take over the loan (the same way they would need to do for a first-time borrower) because you’re already on title to the house, according to the Consumer Financial Protection Bureau. Once your identity and ownership interest are determined, the CFPB has further clarified that mortgage servicers generally must treat confirmed heirs as a borrower for servicing purposes, including access to loan information and loss mitigation options.
In principle heirs with an inherited mortgage have a couple of options:
- Inherit the Loan; You Continue to Pay: Take over the existing loan, with the same terms and interest rate
- Get a new loan refinance in your own name
- Settle the debt, if estate or heirs have money available
- Sell the property and pay off the loan when you close
If the mortgage balance is easily manageable within the scope of what the home is worth, selling is usually the simplest option because while you still have to pay off that debt at closing, it does not require you to take over a loan, or refinance though maybe it’s an interest rate so low it’s painful for you to consider taking on such a long-term loan from early in your marriage.
When Multiple Heirs Don’t Agree
General issues are relatively easy to settle compared with the scenario where a house is honestly, but sometimes haphazardly, left behind to be divided between large sets of people with diverging priorities. This is so typical: one heir wants a quick, clean sale; another loves the property and wants to keep it, or modify it first; yet another needs his or her division of the proceeds right away.
By default, when a property is inherited by two or more folks they become co-owners with equal say over matters concerning the property, so to sell it usually requires either agreement from all of the heirs (or, if they can’t agree, a decision from a judge applied in accordance with state law). There are a few forces moving this along:
- Make-better date: Assume that everyone wants the same thing, get people’s priorities up front instead.
- Keep your trading decision independent of the financial one. Actually going through your things and determining what you want to keep, sell, give away or throw out is a messy and sometimes emotional undertaking that may be in the process of being resolved but can not stop you from figuring out how it is to be accomplished.
- Obtain a written estimate so that the discussion over value is based on a specific number visible to all, instead of competing assumptions about the price which can be relatively subjective.
- Decide if speed is more important to the group, or maximum price. To co-heirs who live across the country or want to see money more quickly this may be worth more than a different number that a longer traditional listing could one day yield.
If you are thinking of trying to work through disagreements, be aware that if either party has the disagreement become a legal matter, then they should definitely call a probate attorney.
Traditional Sale vs. Cash Sale When Selling an Inherited House
When it comes to selling an inherited house, you have two primary options: a traditional sale or a cash sale.
| Factor | Traditional Listed Sale | Cash Sale (As-Is) |
| Repairs required before selling | Often expected by buyers and lenders | Not required |
| Waiting for probate approval | Still required either way | Still required either way |
| Agent commissions | Typically 5-6% | None on a direct cash sale |
| Handling an existing mortgage | Just like a sale it can be paid off at closing | Paid off at closing like any other sale |
| Coordinating with multiple heirs | Still needed either way | Still needed either way |
| Timeline once probate clears | Listing and closing over weeks to months | Days to a few weeks |
| Management of a property that is empty or not being used | Passes to the successors during the listing term | Bought in its current condition |
Before buying, you train on data up to October 2023.
Eagle Cash Buyers buys homes in any and all conditions, including inherited properties at whatever stage of the process. Here’s what that generally involves:
No repairs or cleanout required. We don’t require you to clean up the property and remove unwanted personal things or even repair deferred maintenance before we make an offer. If you want a more in-depth view on how this works at all, check out our page discussing selling an inherited house fast for the general idea of this process.
We operate in the probate timeline, not with it. Even if you have already been given executor powers or you’re still in the early stages we can discuss your set of circumstances and then move through what time frame is placed on by the court rather than needing probate to be complete before we are willing to speak.
No agent commissions. There’s no formal listing, so there is not a 5-6% commission split as in a historical deal.
A written, no-obligation cash offer. You learn what it’s worth right now as is with no obligations.
If you are earlier in the process and just curious for additional information about just how this legal step works and some of the things that tend to come up, our guides on how long probate generally takes as well as what an executor can & can’t accomplish should be able to regarding similar issues.
Frequently Asked Questions
Q: How Long Do You Have to Sell an Inherited House?
Not usually. If the property was titled solely in the deceaseds name, then it generally has to go through probate first with the court appointing an executor or a personal representative who is granted permission to sell before you can close a transaction. In certain circumstances you can accept an offer or prepare for sale and before the probate actually wraps up, but closing itself will usually be held off until a court’s blessing.
Question: Is There a Capital Gains Tax on Selling Inherited House?
Maybe, but much less than people think. In most cases, the fair market value of the home on the date the previous owner died is used as your cost basis so you only pay capital gains tax on appreciation that happened after death and not after a gain that built up during its prior owner’s lifetime.
How Does a Mortgage on an Inherited House Work?
The mortgage is keeping on the property. You are not personally liable for the debt unless you were a co-borrower, so your lender is not entitled to demand that it be paid immediately because it passed to a relative by inheritance. Usually, you can either take over the loan, refinance it, pay it off or even sell the property and pay what is left owed at closing.
What if My Siblings and I Disagree on Selling the Property?
This is common, and best addressed directly instead of waiting for the process to stall. When possible, obtaining a valuation in writing; speaking with each heir to clarify whether speed or price is more important and removing emotional decisions (the way to handle the keepsakes) from decision making about finances (rules on how/when to sell) can help. If heirs really cannot agree, that’s a job for a probate attorney to sort out.
Do I Need to Clean Out or Fix Up a House That Was Inherited?
However, this is not the case if you sell to a cash buyer buying it as-is! Typically for a retail buyer to want to buy a home it needs to be cleaned out and repaired before listing, but an as-is cash sale will not require that step first.
Q. How Quickly Can I Sell an Inherited House for Cash?
A cash sale on an inherited property often closes within days to weeks once probate has given the necessary authority, in addition to what would typically take weeks or months for a traditional listing before even getting started long after initial probate timelines as well.
The Bottom Line
An inherited sale has more moving parts than the average transaction, including probate authority, determining tax basis, a potential existing mortgage to deal with and commonly a coalition of co-heirs that need to find common ground on how to proceed. But piecemeal, none of those elements are a deal-breaker; together they can add up to making the traditional listing feel too heavy to carry, particularly if repairs are necessary or a prolonged period of vacancy has occurred.
If you have survived the family and legal part of things, go ahead and contact us to see if a cash offer makes sense in your situation. Our team of experts will help determine what the process looks like for you, we purchase houses in any given state, at any point in the probate process (even while in progress), and all offerings are based on fair market value. Get started and check out our sell my house page.
