Legal and Financial Responsibilities of Inheriting a Home
When you inherit a house in Maryland, there are several legal and financial responsibilities that you need to be aware of:
Upon inheriting a house, it is essential to review the existing homeowner’s insurance policy and update it accordingly. Inform the insurance company of the change in ownership and ensure that the property is adequately covered. This will protect you from any potential damages or liability issues that may arise.
If the house you inherit still has an outstanding mortgage, you’ll need to address this financial obligation. Review the mortgage terms and conditions to determine whether the loan can be assumed by the inheritor. If not, you may need to consider other options, such as refinancing or selling the property.
Apart from the mortgage, check for any other outstanding debts related to the inherited property. This could include property tax arrears, utility bills, or even home equity loans. It’s essential to settle these debts to avoid legal complications and preserve the property’s value.
What You Can Do With a House You Inherit
After understanding the legal and financial aspects, you have several options for utilizing the inherited house:
If the house holds sentimental value or meets your housing needs, moving in can be a meaningful option. It allows you to keep the property within the family and make it your new home.
Rent It Out
If you’re not planning to reside in the inherited house, renting it out can provide a steady income stream. However, being a landlord comes with its own set of responsibilities, such as property maintenance and dealing with tenants.
If the inherited property doesn’t align with your plans or if you need the funds for other purposes, selling the house can be a viable option. This can provide you with a lump sum of money that can be used for various financial goals.
How to Finance an Inherited House
Financing an inherited house, especially when multiple heirs are involved, can be complex. Here are some financing options to consider:
Take Over the Mortgage
If the mortgage is assumable, you might choose to take over the existing mortgage. This can be an attractive option if the interest rate and terms are favorable.
Purchase or Refinance Mortgage
If you need to buy out other heirs or settle the estate, you can consider purchasing or refinancing the mortgage. This can be done through traditional lenders or specialized inheritance loans.
Cash Out Refinance
Another option is to do a cash-out refinance. This involves taking out a new mortgage that exceeds the current outstanding balance, allowing you to access the equity as cash.
Do You Pay Taxes on an Inherited House?
Taxes on an inherited house depend on the specific circumstances of the inheritance. Let’s look at two scenarios where estate taxes and capital gains taxes may come into play:
Maryland has an estate tax that applies to the value of the decedent’s estate. As of 2021, the Maryland estate tax exemption is $5 million per individual. If the estate’s value exceeds this threshold, it may be subject to estate taxes. However, inherited real estate is generally taxed at its fair market value at the time of inheritance, rather than its original purchase price.
Capital Gains Taxes
If you decide to sell the inherited property, you may be subject to capital gains taxes. Capital gains are calculated based on the difference between the property’s fair market value at the time of inheritance and the final selling price. Fortunately, Maryland offers a step-up in basis, which means the property’s value is adjusted to the fair market value at the time of inheritance, potentially reducing the capital gains tax liability.
If You Choose to Sell Your Inherited House in Maryland
Selling an inherited house in Maryland to a reputable house buying company like Yes I Pay Cash can offer several benefits:
- Quick and Hassle-Free Sale: House buying companies streamline the selling process, allowing you to sell the house quickly and without the complexities of the traditional real estate market.
- As-Is Sale: You can sell the inherited house in its current condition, without contingencies or the need for repairs and renovations.
- Cash Offers: Reputable house buying companies often provide cash offers, ensuring a faster and more secure transaction.
- Avoiding Realtor Fees: Selling to a house buying company can save you from paying realtor commissions, allowing you to keep more of the sale proceeds.
- Sensitive to Inherited Properties: Companies like Yes I Pay Cash understand the emotional aspect of selling an inherited house and can offer empathetic support throughout the process.
What to Do When You Inherit a House - Related Questions
Can I keep the existing insurance policy after inheriting the house?
While you can keep the existing insurance policy temporarily, it’s essential to update it to reflect the change in ownership to avoid any coverage issues in the future.
Do I need to notify the mortgage lender about the inheritance?
Yes, it is advisable to inform the mortgage lender about the change in ownership. They can guide you through the assumption process if the mortgage is assumable.
Can I sell an inherited house with a mortgage?
Yes, you can sell an inherited house with a mortgage. The mortgage balance will be paid off from the proceeds of the sale, and any remaining funds will be distributed among the heirs.
How is the fair market value of an inherited house determined?
The fair market value is typically determined by a professional appraisal, which takes into account the property’s condition, location, and recent comparable sales in the area.
Can I avoid capital gains taxes on an inherited house?
In some cases, you may be able to avoid capital gains taxes by using the step-up in basis. However, consulting with a tax professional is recommended to understand your specific tax situation.
Bottom Line: What to Do When You Inherit a House in Maryland
Inheriting a house in Maryland can be a significant event, both emotionally and financially. Understanding your legal and financial responsibilities, exploring your options, and being aware of the tax implications will help you make informed decisions. Whether you decide to move in, rent it out, finance, or sell the inherited property, weigh the pros and cons to ensure it aligns with your long-term goals.
Disclaimer: This article is for informational purposes only and should not be construed as legal or financial advice. Please consult with professionals for advice specific to your situation.