Inheriting property, even a home, is rarely a total net positive. In most cases, inheriting property is the direct result of losing someone you love, whether it’s a mother, a father, a grandparent, a sibling, or someone else you’re close to. And now, at the height of your emotional loss, you’re stuck with the complexities of inheritance taxes and property ownership.

Managing those newfound responsibilities isn’t always easy.

But we’re here to help. At New Local Realty, we’ve been down this road before, and we know exactly how to explore the ins and outs of figuring out what to do after inheriting a house.

I’ve Inherited A House. What Do I Do Now?

If you’ve inherited a home from a loved one, here’s a step by step plan to follow:

Step 1: Check your Tax Burden

Pennsylvania is one of the few states that impose an inheritance tax, which means you’ll pay a tax on the percentage of the value of the estate transferred to you. If the home is worth $250,000, you may owe a percentage of that—in cash—to the state.

Here are the current (2021) rates based on your relationship to the deceased, according to the Pennsylvania Department of Revenue:

Spouse: 0% inheritance tax
The parent of a child 21 years old or younger: 0%
Direct descendants and “lineal heirs” (which includes adopted children, step-children, mothers, fathers, and grandparents): 4.5%
Sibling: 12%
Other heirs (except charitable organizations and other exempt institutions, including government bodies): 15%

It’s worth noting that a federal estate tax does exist, but it may not apply to you. In 2021, for example, IRS only levies taxes on estates valued over $11.7 million—and that limit typically increases each year.

Step 2: Check the Financials

It’s preferable to inherit a house that is paid off, of course, but that isn’t always the case. Even then, owning that home could create significant financial costs!

Here’s a short list of financial responsibilities the home could open up for you:

Mortgage payments
Insurance payments
Utility payments
Maintenance costs
Homeowner’s Association fees
Property taxes

When combined with your tax burden, inheriting a home could potentially cost thousands of dollars a month, depending on the size of the home, its location, its overall value, and how much is left on the mortgage payments.

With such a significant financial burden, many people simply decide to sell the property right after they get it. And while New Local Realty does buy these sorts of properties, we will note that it’s not your only option after inheriting a house!

Step 3: Decide What to Do With the Home

In general, you have four options when inheriting a home: You have three options:

Waive your rights to the home.
Occupy your new home.
Rent the home.
Sell the home.

Here’s how those options break down:

Option 1: Waiving (or “Disclaiming”) Your Inheritance

Some people choose to waive or disclaim their inheritance, often because they don’t want the tax burden or because they don’t want the responsibility of maintaining the property.

In this scenario, the individual should write a disclaimer stating they are refusing to accept the inheritance and deliver the waiver to the executor or trustee in charge of the estate.

Option 2: Occupying A Home You Inherited

Of course, you could choose to live in the home you inherited, though there could be some hurdles.

We occasionally see inherited homes that are old, cluttered, or in a state of disrepair. In some cases, they’re not even fit for human habitation. These homes require significant work and investment before you can move in.

If the house is ready for you to move in, you may be responsible for a long list of financial costs, many of which we’ve already highlighted:

Mortgage payments
Insurance payments
Utility payments
Maintenance costs
Homeowner’s Association fees
Property taxes

Many who inherit property feel an emotional obligation to keep it. In some cases, they have memories of visiting the property in their childhood, or maybe their parents worked hard to acquire it when they were younger.

Whatever the reason, there’s often an emotional attachment to the property that makes them hesitant to let it go—regardless of the financial burden it could present.

Still, it’s important to acknowledge that while the property may hold emotional significance, it would be a bad financial decision to keep it. In these instances, it’s imperative to consider the rest of your options.

Option 3: Renting a Home You Inherited

If you’ve ever considered acquiring an income property, this could be a good opportunity. Plus, renting out a home you inherited is especially nice when the mortgage has already been completely paid off since now you’re only covering taxes and insurance (and possibly utilities, depending on what you work out with your tenants).

Be aware, though, that being a landlord can be a lot of work. In addition to managing the property (or hiring someone to manage the property), you’ll occasionally find tenants can demand much of your time and resources.

If you’re unsure how to rent your home, or you need assistance in managing the property and finding renters, contact New Local Realty! We can partner with you to manage the property on your behalf.

Option 4: Selling a Home You Inherited

If you’ve ever seen a simple “We Buy Houses!” sign on a four-way intersection telephone pole, this is the type of situation they’re often looking for: A quick offloading of a property someone doesn’t want the hassle of keeping.

In many cases, they’re either looking to fix the house up or quickly flip it, earning themselves a quick dollar.

If you do sell, though, you’ll want to watch out for capital gains taxes on your inherited property. You’ll pay capital gains tax to the state (Pennsylvania’s capital gains tax is currently 3.07%) and to the federal government.

In simple terms, you’ll pay capital gains tax on any income from the sale of the house that exceeds its value. So, if the home is worth $250,000 and you sell for $300,000, you’ll pay capital gains tax on the $50,000 exceeding $250,000.

There are other wrinkles and nuances to be aware of, but the important factor is to partner with someone who can walk you through the process—especially in a time that is especially vulnerable.

New Local Realty can be that partner.

Working With New Local Realty

New Local Realty is a full-service real estate broker that can manage, flip, buy, and sell property. We work with a variety of investors and contractors who are ready to move quickly. Even if a house in the Pittsburgh region is in a state of disrepair, we’re interested in checking it out. If it has good bones, we’ll likely be willing to take it!

Contact us today to get started!

What to Do After Inheriting A House: Navigating Your Options