- Inheriting a house without a mortgage in California means you own it outright and do not have to pay off any outstanding debt.
- Transfer the title of the property through probate process.
- As the new owner, you will have to pay property taxes and any maintenance costs.
- California has high property taxes and housing costs, consult a real estate agent or professional for guidance on maximizing property value.
- Inheriting a house can be a significant asset, but also comes with responsibilities, consult a financial advisor or attorney for advice.
- Home buyers make selling homes as-is fast and easy.
While it’s a generous gift from your loved one, inheriting a house from a parent or family member can be a stressful process. It wraps up family, money, death, and emotions all in one impossible package.
It may be intimidating to figure out how to manage everything even if you’ve inherited a house with no mortgage. Passing of property doesn’t always go as planned and is rarely as easy as depositing a check.
The best way to move on is to know your options and seek professional help in navigating legal and tax laws. To help you out, we’ll take you through the process and the options about how to inherit a home without a mortgage.
Figure Out the Status of the House
Before you take ownership of the house with no mortgage, you must first find out if you’re the rightful heir. This is easier if your loved one left a will.
If they didn’t, you may have to go through probate — a court-supervised procedure that transfers the assets of the deceased to the rightful heir. You also have to go through probate if someone else contests the will.
The court will appoint an executor to help with the probate process — from collecting assets and paying off debts to distributing the residual assets. During this period, the house will be considered an asset of the state.
You can skip probate in California if you inherited the house through a living trust or a transfer on a death deed. Ensure you consult an estate attorney to help you decide whether you need to go through probate. They can also help you find the best way to transfer ownership of the house into your name.
What Happens If You Inherit a House without a Mortgage? Options to Consider
There are several options to consider when it comes to figuring out what to do after inheriting a house that is paid off. The final decision is profoundly personal, so don’t be forced to do something you don’t want to. Below are some great suggestions to consider:
Inspect and Repair the House
Consider carrying out a home inspection for structural, plumbing, roofing, and electrical issues. It will help you determine the condition of the house. Once done, conduct the necessary repairs to make the house sturdy and habitable.
Note that you will have to cater for the inspection and repair costs. To ensure you get value for your money, ask an appraiser or agent to determine the value of the house before revamping. This way, you can decide whether the repairs will make the house worth keeping or selling.
Occupy the House
After conducting repairs, you can choose to live in the house with your family and secure a permanent residence. You can also make it a family holiday home, especially if it is near exciting vacation spots.
If you’re interested in keeping the house, confirm that all debts are settled and get a good insurance policy on it.
Rent the House Out
Renting out the inherited house is also a viable option. You can rent out different rooms or the entire property for short periods on platforms like Airbnb. This is a popular real estate passive income stream that a lot of homeowners are leveraging on.
To make the house attractive to potential renters, make sure to oversee repairs. You will also have to maintain the house’s overall condition over time. Don’t forget to look at the laws that regulate renting in your area.
Sell the Inherited House without a Mortgage
When inheriting a house without a mortgage, it may be easier to sell it if you have no plan of using it. Since there is no mortgage involved, selling the inherited house will be quite straightforward.
What’s more, you may get buyers fast because they are more willing to spend money on a house that minimizes their overall costs. You can sell the house “as is” or conduct repairs and increase the selling price.
Selling your inherited house is pretty much similar to selling a house that you bought yourself.Doug & Andrea Van soest
How to Sell an Inherited House with No Mortgage
Selling your inherited house without a mortgage is pretty much similar to selling a house that you bought yourself. If you’re planning on selling, there are several ways to do it. Consider the options below:
Use a Realtor
Find a realtor who specializes in inherited property. They can help you navigate the loopholes of selling an inherited house without a mortgage in your state. If you have co-heirs, they can also help resolve any conflicts related to the sale.
Sell the House Yourself
To sell the inherited house without a mortgage by yourself, list it as For Sale by Owner (FSBO). While using this route may get you a higher profit, it can be a little daunting because it requires a lot of time and effort. You have to handle everything from pricing and marketing to negotiating and closing.
Find a Cash Buyer
Another way you can sell an inherited house with no mortgage is through home-buying companies. Companies like SoCal Home Buyers facilitate quick, inexpensive, and hassle-free cash sales in just a few days.
SoCal Home Buyers facilitate quick, cost and hassle-free cash sales in just a few days.Doug & Andrea Van Soest
Better yet, you can sell the inherited home “as is”. This is an ideal option if the inherited house is in a poor state or you live far away and need a fast sale.
Tax Considerations When Inheriting a House with No Mortgage
You may still have to pay taxes even if you inherited a house with no mortgage taxes. While properties in California aren’t subjected to estate tax or inheritance tax, other types of taxes may apply.
You start paying the property tax as soon as you inherit the house and continue paying as long as you own the property. Keep in mind that the amount you pay will be higher than what your loved one paid with the reassessed value.
Capital Gains Tax
If you’re inheriting a house with no mortgage and planning to sell, you will have to pay capital gains tax. This type of tax relates to the profit your house generates once it’s sold.
The amount you pay will depend on the fair market value at the time of inheritance and the final selling price. For instance, suppose the house was worth $600,000 at the time of your loved one’s passing and it’s worth $800,000 now. You will have to pay a capital gains tax of $200,000.
The amount you pay will depend on the fair market value at the time of inheritance and the final selling price. For instance, suppose the house was worth $600,000 at the time of your loved one’s passing and it’s worth $800,000 now. You will have to pay a capital gains tax of $200,000.Doug & Andrea Van Soest
You’re eligible for a short-term capital gains tax rate if you have held the inherited house for less than one year. The longer you stay with the house, the higher the capital gains tax rate.
Remember that capital gains only apply if you sell the house at a profit. In case you sell it for less, you can claim a capital loss deduction.
How to Sell an Inherited House without a Mortgage While Avoiding Taxes
While inheriting a house without a mortgage can increase the value of your estate, it can also result in serious tax consequences as seen above.
Want to sell your inherited house and make a profit while avoiding hefty capital gains taxes? Here are some ways to make this happen legally:
Sell the Property Quickly
One way to evade capital gains tax is to sell the home as fast as possible. This allows you to sell it at the same price as it was at the time of the inheritance. As a result, you won’t have to pay the capital gains tax.
But selling an inherited home fast can be challenging. You have to consider the costs of hiring a real estate agent and a home inspector as well as doing the necessary upgrades. It will be easier and faster to sell your house to a home buying company instead.
Make the House Your Primary Residence
Another effective way to dodge capital gains tax is by leveraging the IRS’ primary residence exclusion. You can transform the inherited house into your primary residence and use it for two out of the five years before the date of the sale to evade taxation.
If you’re single, you can get a capital gains exclusion of up to $250,000 while a married couple can get a write-off of up to $500,000 for the sale. Note that this depends on the value of the house.
This approach can only apply if the inherited home is your only primary residence – and won’t help you if you have several investment properties. What’s more, you’ll have to keep the house for five years before you can take advantage of the tax exclusion.
Take Advantage of the 1031 Exchange
Turning the inherited house into an investment property can help you avoid taxes. You can sell the house and file a 1031 exchange to buy a new investment property. This helps you defer capital gains taxes and grows your investment portfolio and builds equity.
However, you can only benefit from the 1031 Exchange if you purchase a property that looks like your inherited house. You must also select a replacement house within 45 days of selling the inherited house and the whole transaction must be completed within 180 days. This can be overwhelming at a time you are experiencing grief.
Keep in mind that you can only use the replacement property as an investment and not for personal use.
Keep Track of Selling Expenses
You can lower your capital gains tax liability by deducting any expenses used to prepare the home for sale.
For instance, if you sell the inherited house for $700,000 and its fair market value on the date of your inheritance was $650,000, you have $50,000 in capital gains.
But you can lower the costs by deducting the selling expenses of $45,000. This only leaves you with $5,000 in capital gains.
You can lower your capital gains tax liability by deducting any expenses used to prepare the home for sale.Doug & Andrea Van Soest
Thus, ensure you track all the expenses related to revamping and selling the house. Don’t forget the closing costs.
Disclaim the Inherited House
Just because you’re named the heir of a house doesn’t mean you have to take ownership. If you don’t want to deal with the tax issues of the property, you can choose not to inherit the house with no mortgage.
Keep in mind that once you disclaim the inheritance, you can’t keep or sell the house. The property will be passed on to the next person in line with the inheritance.
Shared Ownership When You Inherit a House Without a Mortgage
Inheriting a house without a mortgage can be more complex when the deceased leaves the property to several heirs. If you share the ownership of the house (for example, with your siblings), you will have to figure out the details of how to proceed together. Consider the following options:
If one party wants to keep the home and the other wants to sell, consider a buyout. You can do it in cash or by funding half of the house’s value. The buyout may include out-of-pocket costs like closing charges and an appraisal.
Sell and Split the Profits
You and your co-heir can agree to sell the house and share the proceeds after commissions and expenses. Both parties must be in agreement with the sale for this to happen.
Rent and Split the Profits
Renting out the house and sharing the profits from the rent is also a suitable option if none of you is willing to sell. Ensure you split the profits after deducting the property management costs.
Renting out the inherited house makes financial sense if the real estate market isn’t profitable. If the market becomes favorable, you can still choose to sell the house with tenants in it and share the proceeds.
Go to Court
If you and the other co-heirs can’t agree on what to do with the inherited house, you’ll have to go to court. This involves filing a claim for partition and the process can be expensive and time-consuming.
Ensure you and the co-heirs are honest and transparent about your intentions. It will help you come to a mutually beneficial conclusion faster.
Inherit a House With No Mortgage in a Trust?
If you inherited a house in a trust in California, it would be best to consult with a trust and probate attorney. An attorney can help you understand the terms of the trust, your rights as a beneficiary, and the process for transferring the property out of the trust.
They can also advise you on any legal and tax implications of inheriting a house in a trust, and help you navigate any challenges that may arise during the process.
Get Fast Cash with SoCal Home Buyers
We understand the emotional turmoil that comes with the passing of a loved one and planning to sell an inherited house. This is why we want to make the process easier and stress-free for you. Our company specializes in buying inherited houses for cash in California.
Learn More: Should You Sell Your Inherited House?