Inheriting a home can be a complex situation to be in. It can change your financial life completely, especially as real estate becomes more expensive all across the country.
Receiving this legacy can help those in the younger generation get into the market when they would otherwise be shut out. That said, the experience is an emotional one that is often filled with grief and uncertainty. In this post, we’ll outline the options in front of you when deciding whether to sell or keep an inherited home.
Keep or Sell the Home
Often, those inheriting a home will decide to keep it in the family. This path offers numerous advantages:
- It’s a way of staying close to the memories of your loved one.
- If you don’t currently own a home, you can take possession as your primary residence and avoid capital gains taxes later.
- You could choose to rent out the property as a way of generating income and generational wealth.
- You can keep it for your family’s use or as a second vacation home.
It isn’t always feasible to hold on to a home you inherited. The memories can sometimes be too painful, in which case letting go is the best way for the healing process to begin. Other times, the new owner may live in a different city, which makes managing the property more difficult than it’s worth. By selling, you can give yourself and the other beneficiaries a financial head start, perhaps even to make a new beginning in a new home somewhere else.
Selling a house isn’t always easy, but the posts below are a great place to find some guidance:
- How To Make Selling a Home Easier During a Divorce
- Can You Sell Your Peterborough Home Remotely?
- What Is FSBO and Is It Ever a Good Idea?
How Capital Gains Work Today
Capital gains are one of the biggest concerns when a home passes from one generation to another. We are not lawyers or accountants, so it’s always a good idea to obtain professional guidance before moving forward. However, here are a few things to keep in mind as you decide whether to sell or keep the property.
- Principal residences are exempt from capital gains. If it was your loved one’s only home, you will not have to pay if you sell the house before its fair market value increases.
- An inherited house that was a vacation or rental property will likely have unrealized capital gains. This means that the asset has increased in value, but the taxes are not due until it has been sold.
- If you choose to sell, 67% of the equity gains will be added to the income of the estate the following tax year (as per the new guidelines taking effect on June 25, 2024.)
Here’s an illustration of how capital gains when selling an inherited second home shortly after taking possession.
Imagine that your relative bought their home many years ago for $100,000. When you take possession, it is appraised at $600,000, which represents an increase of $500,000. In the year you sell the house, $335,000 (67% of $500,000) is taxable, which must be taken care of before the estate can be fully settled.
Capital Gains In the Future
Let’s imagine you inherited a home from your parents that they used as their principal residence. However, you already own a house, which makes this new acquisition a second property.
If you sell it right away, you won’t be subject to capital gains. If you hold on to it and sell it a few years from now, you will pay on the difference.
Let’s use the same scenario where your loved one purchased the property for $100,000. Over the years, it has grown in value to $600,000 when you take possession. At this time, you will not be subject to capital gains.
Now imagine you decide to sell ten years later, and you earn $650,000 from the sale. You have an equity gain of $50,000, 67% of which is taxable. This means you add $33,500 to your income that year.
Going Through Probate
If your name is not on the title, you will need to be the Executor of the Will to have the authority to list the property for sale. While this may not be a comfortable conversation, it’s essential to have it before this time arises. Otherwise, the probate process can be more drawn out and expensive than it has to be.
Obtaining probate will be much more straightforward with a clearly defined executor and legal will. Once the courts grant probate, you are free and clear to disburse any assets according to your loved one’s wishes.
Are you looking for simple ways to bring your home to market with as little effort as possible? The resources below can help:
- Why Should You Stage Before Selling Your Home in Peterborough?
- When Is the Best Season to Sell Your Peterborough Home?
- What a Concierge Realtor® Can Do to Sell Your Home
Preparing the Home for Sale
Selling an inherited home can be more complex than a standard transaction. Even once all of the legal matters are behind you, going through your loved one’s belongings can be a heart-wrenching experience. If you’re trying to juggle a real estate transaction from a distance while managing your own life, it can be even more overwhelming.
A real estate agent well-versed in estate sales will be invaluable during this time. Once you’ve removed every item with sentimental value, we can step in to handle the remainder of the decluttering to quickly get the home ready for the market.
A fast transaction is often a high priority when selling an inherited home. This may mean skipping some of the renovations and more extensive upgrades we typically recommend before going to market. That said, there are still many small ways we can make your home more appealing to potential buyers.
- A professional cleaning from top to bottom will help the home feel airy and spacious.
- Minor repairs and updates, such as a fresh coat of paint, are often all a house needs to sell successfully.
- Well-thought-out staging allows potential buyers to envision the space as their own. Our staging coordinator has this down to a fine art.
- A compelling price strategy will generate excitement about your listing and attract the attention of potential buyers.
Throughout the process, it’s important to remember to take some time out for you. Surrounding yourself with a support network and a professional real estate team will remove much of the burden off your shoulders. With a successful sale behind you, you can complete your role as the Executor of the Will and the healing process can truly begin.
Are you buying or selling a home under unusual or challenging circumstances? Our compassionate and knowledgeable Peterborough real estate team is here to help. Contact us today at team@jeffandkatie.ca or 705-243-9797 with any questions.
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