What to do when you inherit a house:
Inheriting a house in the Lowcountry can be both a wonderful gift and a challenging burden. If you inherited a home, you most likely just lost a loved one. Working your way through the intricacies of probate procedures, federal tax, state tax, and more while dealing with the loss of a loved one is an incredible challenge.
The Process of Probate
The probate process can be divided into several steps. The first step is to determine whether the decedent had a will. If there is a will, the executor of the estate will be responsible for carrying out the wishes of the deceased. If there is no will, the court will appoint an administrator to manage the estate. The administrator will be in charge of distributing any remaining assets to the beneficiaries or heirs.
Taxes
There are several types of taxes that you may have to worry about after a loved one has passed. Income and estate taxes, inheritance tax, probate tax and capital gains or loss tax. If you’re the personal representative for someone’s estate, then you’ll have to file the decedent’s income taxes. This can include income taxes (state and federal), and fiduciary income taxes (state and federal). You’ll also have to pay probate taxes and possibly inheritance tax. If you don't already have one, you should hire a CPA (certified public accountant) who has knowledge and experience in handling inheritance tax.
Capital Gains Tax
The “Step Up Basis” is a crucial concept in the realm of real estate inheritance that can provide significant tax benefits to heirs. Essentially, when a property is inherited, its tax basis is “stepped up” to the fair market value at the time of the original owner’s death rather than the initial purchase price. This adjustment helps heirs avoid the capital gains tax on the appreciation that occurred during the deceased owner’s lifetime. For example, let’s consider a house in the Hilton Head Island, Bluffton, or Beaufort area of the Lowcountry purchased by the original owner for $250,000. Over time, the property appreciates to $500,000 when the owner passes away. If the heirs inherit this house, they receive a step-up basis, which means the new tax basis is the current market value of $500,000. If they decide to sell the property for $500,000, they won’t owe any capital gains tax, as there’s no gain in value since the deceased owner’s passing. This provision ultimately helps heirs maximize their inheritance while minimizing tax liabilities.
Selling an Inherited House
If you opt to sell the inherited property, several factors require careful consideration. Firstly, determining the property’s value is essential, which can be achieved by engaging a professional Realtor such as myself. Subsequently, assess the financial viability of upgrading the property versus selling it in its current condition.
If you or someone you know is facing a Probate situation and is need of an experienced Realtor to guide them through the process, please reach out.
Christopher Della Rosa, Charter One Realty 843-290-1927 cdellarosa@yahoo.com