If you are inheriting a house that is paid off, in most cases, you will still need to go through probate. Some states may allow you to bypass probate if a quitclaim deed was executed properly. However, it is likely that you will still need to go through probate even if you are inheriting a house with no mortgage.
If you inherit a house, changing the deed is one of the first things you'll want to do. It's an important step that ensures your name is on the deed and proves your legal entitlement to the property moving forward. Here's a step by step guide that breaks down this process.
Beneficiaries may need to pay out-of-pocket for ongoing expenses like property taxes, utilities, insurance and general upkeep. Also, the probate process is a matter of public record. This means that the details of your estate, including information about your home, become accessible to the public.
While California may not impose an inheritance tax or an estate tax, there are still taxes associated with selling an inherited property: Capital Gains Tax: Capital gains tax is applied on a stepped-up basis, meaning it's only relevant to any increase in the property's value after inheritance.
When a house is transferred via inheritance, the value of the house is stepped up to its fair market value at the time it was transferred, according to the IRS. This means that a home purchased many years ago is valued at current market value for capital gains.
Beck, Lenox & Stolzer Estate Planning and Elder Law, LLC, knows from experience how bad behavior can erupt among the siblings as well. Many people think children automatically inherit a house when their parents die, but this isn't true. It's possible for children to inherit without a will, but it doesn't always happen.
Assumption of the Mortgage When Inheriting Property
Germain Act. This means that you can continue making the payments on the existing mortgage without the need for refinancing. However, just because the law permits you to assume the mortgage doesn't mean the process is simple.
All About the Stepped-Up Basis Loophole. A stepped-up basis is a tax provision that allows heirs to reduce their capital gains taxes. When someone inherits property and investments, the IRS resets the market value of these assets to their value on the date of the original owner's death.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
Your share of sales proceeds (generally reported on Form 1099-S Proceeds From Real Estate Transactions) from the sale of an inherited home should be reported on Schedule D (Form 1040) Capital Gains and Losses in the Investment Income section of TaxAct.
“Cash is king when it comes to leaving an inheritance,” said Carbone. “It's the simplest asset to deal with in terms of a transfer.”
Selling a property with your name on the deed but not on the mortgage creates added levels of complexity and requires more collaboration with third parties. However, you can achieve a successful sale with careful planning and the right support.
The straightforward answer is no, and there is no specific time limit on selling an inherited property. However, certain factors will influence the timeline of the sale process. Understanding these nuances is key to ensuring a smooth and compliant sale.
If you inherit a house with a mortgage, you can sell the house or assume the mortgage yourself. You should determine the equity and costs before making any final decisions. You might also consider refinancing to lower the interest rate or monthly mortgage payments.
In this instance, if the home appreciates (rises in value) between when you inherited it and when you sell, you will be subject to capital gains tax on the difference. This is because the inherited home is now considered an investment property, even if you haven't sought to be a real estate investor.
If your spouse passes away, but you didn't sign the promissory note or mortgage for the home, federal law clears the way for you to take over the existing mortgage on the inherited property more easily.
Some also worry that the home will be sold quickly, against their wishes. And there is good reason to be concerned. If you bequeath a house to an heir or heirs, they will have to make an immediate plan for home maintenance, mortgage payments (if necessary), utilities, property taxes, repairs and homeowners' insurance.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income.
Keeping the property can preserve family connections, help you navigate California's competitive market, and allow for potential property value appreciation. Additionally, you'll enjoy the tax benefits of homeownership and the comfort of staying in a familiar neighborhood.
The basis of property inherited from a decedent is generally one of the following: The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)).