Inherited Property: Are There Any Legal Time Limits to Sell?

Inheriting property can bring financial relief or additional stress, depending on your situation. If you have received an inherited home or land, you may be wondering if you need to sell it within a certain timeframe. The answer is no – there is no time limit on selling inherited property. Once you go through probate and legally inherit the property, you can sell it whenever you want.

Key Takeaways

• There is no legal time limit to sell inherited property after you inherit it. You can sell immediately or hold onto it indefinitely.
• If you sell within one year of inheriting, you’ll pay short-term capital gains taxes on any profits from the sale. After a year, profits are taxed as long-term capital gains.
• Capital gains taxes on inherited property range from 0% to 20% at the federal level, depending on your income. Some states also charge capital gains tax.
• It’s smart to consult a tax professional when selling inherited real estate since capital gains can significantly impact your tax bill.

Understanding Probate

Before inheriting and selling property from someone who has passed away, it must go through probate. This is the legal process that happens after someone dies to settle their estate.

Probate serves several key functions:

• Validates and enforces the will
• Identifies assets and appraises value
• Pays outstanding debts and taxes
• Distributes remaining property to rightful heirs

The probate process must fully complete before you have legal authority to sell inherited real estate.

The length of probate varies substantially depending on factors like:

• Simplicity of the will
• Type and quantity of assets
• Potential disputes/complications

If the deceased left a clear will and instructions on distributing a basic set of assets, probate can wrap up in just a few months. However, for complex estates with inter-family fighting over assets or confusing will instructions, it can drag on for 1-3 years in some cases.

On average, you can expect probate to take around 9-12 months with normal complexity. But connect with the estate executor early on to see if there are ways to expedite it.

The sooner it closes, the faster you can move ahead selling inherited property and collecting your distribution. Just stay patient and keep communicating with the executor throughout the process.

Also read: How to Buy Investment Property With No Money Down

What is Inherited Property?

Inherited property refers to any type of asset or possession that you receive upon the death of another person, usually through a will or trust. This can include a wide range of assets, depending on the deceased’s estate and applicable laws.

How Inheriting a House Works

When a homeowner passes away, their assets – including any real estate – goes through probate. This is the legal process of validating the will and settling the person’s estate.

The house, along with all other assets, will get appraised and any outstanding debts or taxes will get paid. Then the remaining property is distributed according to the person’s will or state law if there is no will.

As a beneficiary, you need to wait until probate concludes and you formally inherit the home before you can sell it or make any changes. The timeline varies, but often takes at least several months.

Once the judge signs the paperwork granting you ownership, you can legally sell the inherited home whenever you want. There is no time restriction. Of course, you may choose to live in the home for sentimental reasons or as a vacation property. But you always have the option to list it on the open real estate market.

Also read: Is Real Estate Tax the Same as Property Tax

What Types of Property Can Be Inherited? 

In general, most types of property can be inherited, but it depends on various factors like the specific legal system governing the inheritance and potentially the type of property. Here’s a breakdown:

Common types of inheritable property:

• Real estate: Houses, land, condominiums, etc.
• Personal property: Cars, jewelry, furniture, art collections, etc.
• Financial assets: Cash in bank accounts, stocks, bonds, retirement accounts (depending on beneficiary designation).
• Business interests: Ownership shares in companies, partnerships, etc.
• Intellectual property: Copyrights, patents, trademarks (may require specific procedures).

Things that aren’t inheritable:

• Debts: In most cases, debts are not inherited by beneficiaries, although they may be responsible for settling outstanding debts from the estate before receiving their inheritance.
• Life insurance proceeds: These typically go directly to the named beneficiaries on the policy, bypassing probate.
• Social Security benefits: These are not considered property and cannot be inherited.

How to Claim Inherited Property

Before you can sell inherited property or employ tax minimization strategies, you first need to legally claim it. This requires navigating the probate process.

When a property owner dies, their estate enters probate court to authenticate the will and approve the executor. All assets in the estate are inventoried and appraised. The court then oversees payment of debts and taxes owed by the estate.

Finally, the remaining property is distributed to heirs named in the will or determined by state law if there is no will. This transfer of assets requires signed paperwork and legal filings.

Once this process concludes, probate closes and you formally inherit ownership of any distributed property. The timeline varies substantially by state. Some simple estates wrap up in months, while complex estates with disputes can take years to resolve.

You do not have authority to list property for sale until the probate judge signs your inheritance papers. So it’s imperative to work with the executor to keep the proceedings moving efficiently.

Some ways to expedite probate include:

• Locating all essential documents like deeds, titles, insurance papers etc.
• Minimizing disputes among beneficiaries over asset distribution
• Securing professional appraisals of property value
• Paying outstanding bills/taxes promptly

The sooner probate concludes, the faster you can sell inherited property if desired or start reaping rental/investment income.

Also read: Best Places to Invest in Real Estate in the United States

Can I Sell an Inherited House?

Yes, you can sell a house that you inherit. Once you have gone through the probate process and legally inherited the property, you have full rights to sell the house whenever you want. There is no time limit or restrictions on selling inherited property after you become the owner.

However, there are some important factors to understand before putting an inherited house on the market, particularly surrounding taxes.

How to Sell an Inherited House?

Selling an inherited house can be an emotional and complex process, but with the right knowledge and guidance, it can be successfully managed. Here’s a breakdown of the key steps involved:

Before you list

• Check for a Will: The presence of a will determines who inherits the property and the legal procedures involved.
• Probate: This court process settles the deceased’s estate, including debts and taxes, before you officially own the house. Its duration varies depending on the estate’s complexity.
• Coordinate with Heirs: If there are multiple heirs, discuss your selling intentions and reach an agreement on the process and potential profits.
• Consider Your Options: Decide if you want to sell through a traditional real estate agent, iBuyer (quick cash offer company), auction, or directly to a buyer. Each option has its pros and cons in terms of speed, price, and effort.
• Get a Property Valuation: Understand the market value of the house through appraisals or comparative market analysis.
• Prepare the House: Consider minor repairs, decluttering, depersonalizing, and staging to improve its appeal to buyers.

Selling the House

• Choose a Real Estate Agent (Optional): If going the traditional route, find an experienced agent with good local knowledge and a proven track record.
• Market the Property: Depending on your chosen method, utilize appropriate marketing channels like online listings, open houses, or targeted advertising.
• Negotiate Offers: Work with your agent or handle offers directly, considering price, contingencies, and closing terms.
• Closing the Sale: Finalize paperwork, transfer ownership, and settle any outstanding fees or taxes.

How to Selling a House With Multiple Inheritors

Selling a house with multiple inheritors can be complex, involving legal considerations, family dynamics, and financial decisions. Here’s what you need to know:

Before you sell

1. Understand ownership & agreement:
   • Ownership type: Determine if you own the house as Joint Tenants or Tenants in Common. This affects how sales decisions are made.
   • Agreement among inheritors: Agree on selling as the best option. Open communication and clear expectations are crucial.
2. Legal considerations:
   • Probate: Ensure the estate is settled and ownership transferred to inheritors. Seek legal advice if needed.
   • Taxes: Understand capital gains tax implications and any legal requirements for multiple owners selling property.
3. Financial considerations:
   • Valuation: Get a professional appraisal to set a fair market value for the house.
   • Costs: Estimate and factor in selling expenses like realtor fees, repairs, and closing costs.
   • Distribution of proceeds: Decide how to split the profits based on inheritance shares or negotiated agreements.

Selling options

1. Sell through a real estate agent: This is the most common option, offering expert marketing and negotiation. Choose a reputable agent experienced in inherited property sales.
2. Sell directly to a buyer: This can be faster and avoid agent fees, but requires finding a buyer and handling legalities yourself.
3. Buy-out by one inheritor: If one inheritor wants to keep the house, they can buy out the others’ shares. Negotiate a fair price with legal guidance.

Alternate Ways to Sell Your Inherited House

While the traditional route of selling through a real estate agent is common, several alternative options exist for inheriting a house:

Faster Options:

• iBuyer: These companies like Opendoor or Zillow Offers purchase houses directly, offering a quick cash sale (within days) at a discounted price (usually 5-15% below market value). Pros: Speed and convenience. Cons: Lower price.
• Auction: Public auction houses facilitate quick sales, attracting various buyers. Pros: Fast closing, potential for competitive bidding. Cons: Uncertain final price, risk of selling below market value.

Less Traditional Options:

• For Sale by Owner (FSBO): You handle the marketing and showings yourself, saving agent commission but requiring time and effort. Pros: Full control, potential for higher profit. Cons: Marketing expertise needed, harder to reach all potential buyers.
• Owner Financing: Sell the house directly to a buyer with monthly payments instead of upfront cash. Pros: Avoid real estate fees, potential for higher long-term profit. Cons: Risk of buyer default, responsibility for property maintenance.
• Rent-to-Own: Lease the house with an option to purchase, generating income while giving the tenant an opportunity to buy later. Pros: Steady income, potential buyer already secured. Cons: Tenant may not qualify for mortgage, risk of property damage.

Creative Options:

• Life Estate Sale: Sell the right to live in the house for a set period while retaining ownership, providing income and emotional connection.
• Charitable Donation: Donate the house to a qualified charity for tax deductions and supporting a cause.
• Real Estate Investment Trust (REIT): Contribute the house to a REIT, receiving consistent income without direct management responsibility.

Others Option:

• Live in it – As mentioned, you can move into the home and avoid capital gains tax on up to $250k in profit (or $500k for married couples) due to the home sale exclusion.
• Rent it out – Becoming an out-of-state landlord can provide ongoing passive income. Though you then can’t use the home sale exemption when you eventually sell.
• Transfer ownership – You may be able to transfer the house directly to beneficiaries of your own, such as your kids or grandkids, which keeps it in the family.

Tax Implications of Selling an Inherited House

While you can certainly sell an inherited home, taxes may influence your decision on when. As with other assets, inherited property comes with potential capital gains tax exposure when sold.

If you sell within one year, you pay short-term capital gains rates (10-37%) on the profit. After one year, profits qualify for more favorable long-term capital gains tax rates (typically 0-20%).

Given the tax savings, most financial experts recommend holding inherited real estate for at least year before selling when feasible. However, everyone’s financial situation is different.

Consulting a tax professional to review your specific scenario is highly recommended. They can provide tailored advice on strategies to minimize your tax obligation when selling an inherited home.

Strategies to Minimize Taxes on Sale of Inherited Property

Because taxes can take a big cut of sale profits, many heirs employ strategies to minimize their capital gains tax exposure:

• Live in the home for 2 years – If you inherit real estate, moving into the property for at least 24 months before selling can potentially exempt you from capital gains tax on up to $250,000 in profit (or $500,000 for married couples). This is due to the home sale exclusion rule.
• Make upgrades to increase basis – Any investments you make to improve the property – from kitchen remodels to new HVAC systems – can increase your tax basis, which reduces the taxable capital gain when you eventually sell.
• Set up an Inherited IRA – If you inherit financial assets like stocks or mutual funds, you may be able to transfer them to an Inherited IRA account rather than liquidating right away. This shelters capital gains tax until you are required to take distributions.
• Donate the property – You can avoid capital gains tax by donating the inherited property to charity, either directly or through strategies like Charitable Remainder Trusts. You do lose control of the asset but can take a deduction for the donation.
• Do a 1031 exchange – 1031 exchanges allow you to sell investment property and defer capital gains tax by re-investing in another like-kind property. This essentially resets the cost basis on the new property.

As you can see, with smart planning you can often reduce or eliminate capital gains taxes on inherited property. Consulting a financial advisor or tax professional is crucial when inheriting significant assets. They can review your specific situation and timeline to develop the ideal strategy.

The bottom line

The bottom line is that heirs can sell inherited property at any point once they legally inherit it. There is no statutory timeline.

However, capital gains taxes based on the holding period often influence when inherited assets are liquidated. Selling before one year triggers higher short-term rates. Waiting longer allows the profit to qualify for preferential long-term capital gains rates.

Consulting tax and financial experts is essential to maximize your inheritance while minimizing tax exposure. With proper planning, you can often reduce or defer taxes substantially.

Frequently Asked Questions (FAQ)