What to Do With That Old House You Inherited?

large suburban home
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With the death of a loved one come grief and a whole other host of woes. The feelings of loss and heartache fill the atmosphere. A family reunion with one less family member. The funeral preparations and all the costs and emotional turmoil tied to it. Then, there’s the day after the interment; the raw, emotional feeling. They’re gone. But their problems quite aren’t.

The family lawyer comes in and says the family needs to meet. Being the executor of the deceased’s will, you learn from them that your loved one had left the house for you. Should you be happy? Should you be excited you won’t pay rent anymore? Should you feel afraid? Yes, you should.

Inheriting an old house is like inheriting a new set of problems and headaches for you, the inheritor. Depending on the wealth of the person who died, they may be subjected to federal estate taxes and state estate and/or inheritance taxes. Hopefully, the deceased’s estate has already taken care of the costs if there are any, which leaves the elephant in the room: your brand new old house.

After all that hullabaloo, what do you even do with the old house you inherited? Here are three possibilities.

Sell It

house for sale signage in the lawn

After considering all the sentimental value the house had, you decided to sell it. it’s a tough call, especially if your family doesn’t like the idea. The thing about inheriting a property is that its tax basis is then “stepped” to the market value at the date of the death of the owner. Say it originally cost $100,000, but then by the time they died, the housing market prices shot up. It’s now valued at $300,000. That’s a lot of money, right? And if you sell it at a profit, let’s say, $325,000, the profit considered by the IRS as gained is only $25,000. The taxes you’ll pay, if there are some, won’t be much.

Of course, after that, you just have to consider any mortgage balance, real estate commissions, and other pertinent costs.

Move In

You won’t have to pay rent anymore. You have your own home. You should feel happy and relieved, right? Well, not quite. Congratulations, you’re now the proud owner of an old house that probably needs some repairing. Then there’s the electric bill, the water bill, the heating, and home insurance. Not to mention property taxes, and considering that the property’s tax basis stepped-up, you’ll now be paying higher property taxes.

However, you still have your loved one’s home. Your home. Any cost that comes with it doesn’t matter in the end.

Rent It Out

You decided to be a landlord to your brand new old house. Along with the costs and insurances of having a rental property, you also need to cover any medical and legal liability involved in it. Not only that, you’ll owe more capital gains taxes since it won’t qualify for exclusion considering you didn’t move in the house. Of course, if you’re thinking of selling the property after, you should consider doing a 1031 exchange to agriculture or other commercial properties to defer the CGT you’ll be paying.

Inheriting an old house, despite the sentimentality of it, is often complicated and full of woes. If you didn’t inherit it alone, that’s another story, too. But whatever you want to do with your brand new old house is up to you.