Selling an inherited home fast can save you thousands in the long run, as doing so eliminates carrying costs you'd otherwise have to shoulder, from taxes to utilities and insurance. You can even bypass costly property renovations if you opt for this route.
A quick inherited property sale can be particularly practical nowadays, considering that homeownership costs are skyrocketing. As the U.S. Census Bureau reports, homeowners with a mortgage had median monthly owner costs of $2,035 in 2024, a 3.8% increase from the previous year.
What Is the Two-Year Rule for Inherited Property?
The two-year rule associated with selling inherited property usually refers to the requirement set by the Internal Revenue Service (IRS) for claiming the primary residence capital gains exclusion.
According to the IRS, single filers may qualify for an exclusion of up to $250,000. Married couples filing jointly, on the other hand, may qualify for up to $500,000. In either case, the homeowners/filers would have to have lived in the residence for at least two years (24 months) of the last five years.
What Are Common Mistakes Made With Inherited Homes?
One of the most common errors that heirs make with inherited houses is assuming immediate ownership. The legal authority to sell, rent out, or refinance a property doesn't immediately get "handed" over to heirs after the original estate owner passes.
Estates must first clear the probate process (verifying the validity of a will) to establish legal ownership. It's a time-consuming procedure that usually spans 20 months, according to Investopedia.
It's also expensive, with the cost ranging around 3% to 7% of the overall value of the estate.
Forgetting about tax liabilities in home sales is another big mistake heirs make. You should avoid this at all costs when you sell your inherited house, as committing this mistake can trigger IRS audits.
You could face significant financial penalties and even tax liens placed on the property.
How Can Selling an Inherited Home Fast Save You Thousands?
Selling an inherited home fast can save you thousands, as you won't have to shoulder the burden of rising homeownership costs. You can further avoid hefty expenses by selling the house as-is and not paying capital gains tax in home sales.
Eliminate Carrying Homeowner Costs
When you inherit a home, you'll also inherit the bills that come with it. They include:
- Mortgage payments
- Utilities like electricity, natural gas, water, sewage, and waste collection
- Homeowners' insurance
- Applicable property taxes
The longer you keep the property, the more those bills will pile up. You'll also have to consider the cost of property maintenance and repairs, which, like most other homeownership costs, are also soaring.
A report from CNBC News breaks down the annual non-mortgage expenditures that the average U.S. homeowner spends each year, totaling $23,686. With HOA fees included, the total rises to nearly $28,000 annually.
If you want to avoid those costs and set aside the money you'd otherwise spend on them, sell your inherited home as soon as possible.
Bypass Expensive Renovations
Renovations are becoming more expensive, driven by factors like continuous supply chain constraints and hefty spikes in construction material prices.
The Daily Herald even wrote about how the median renovation spending has increased by 60% since 2020. Homes that range from 1,250 to 1,600 square feet now cost an average of $51,772 to renovate.
While you can always remodel on a budget, you don't have to do the same for an inherited home that you'll sell off soon, anyway. You can always consider selling a home as-is to avoid the additional burden of expensive renovations.
Avoid Having to Pay Capital Gains Tax
Selling an inherited home soon after you gain legal ownership of it helps you avoid having to deal with capital gains tax liabilities. A key reason is that with inherited properties, their values get "stepped up" to their current market values.
Suppose the deceased estate owner purchased their house for $200,000. Over the years, they made improvements to it, and at the time of their passing, the property's worth had skyrocketed to $700,000.
Under normal circumstances, selling the house would result in a capital gain of $500,000 (sale price of $700,000 less the original purchase price of $200,000). The owner would then have to pay taxes applicable to that capital gain.
The IRS, however, treats inherited properties differently. Their values "step up" to the current market value the day heirs inherit them.
If you sell your inherited house soon after, you likely won't have to pay capital gains tax. The property's purchase price would be much closer to its stepped-up value.
If, however, you sell the house later and it has appreciated from its stepped-up value, you would already have to pay capital gains tax.
Frequently Asked Questions
Is Inherited Property Considered Income?
The act of receiving inherited property itself isn't a "source of income." The property, however, will become one if it generates income, such as if you sell it for a profit over its stepped-up value or you rent it out and earn rental income.
Do You Need to Notify the IRS About Selling Inherited Property?
Yes, you must report the sale of inherited property on your federal tax return, even if you don't have to pay capital gains tax on it.
It's a legal obligation that constitutes part of your IRS information reporting requirements. It can help prove you don't have tax liabilities, and the IRS won't mistakenly tax you on the entire sales price.
Why Is It Better to Sell an Inherited Home As-Is?
Selling an inherited home as-is could be an ideal option because it frees you from the time-consuming, expensive, and often stressful process of completing repairs and renovations.
Just as crucial to remember is that repairing and renovating your inherited property will cause its value to increase. The greater the difference in its appreciated value versus its stepped-up value, the more capital gains tax you'd have to pay.
Save Thousands by Selling an Inherited Home Fast
Selling an inherited home soon after you've received official, legal ownership is key to saving thousands in today's market. The sooner you sell it, the less you'll have to pay in carrying costs, capital gains taxes, and renovations.
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