It’s one thing to inherit your parent’s china set or family silverware. You can either hold onto these heirlooms and pass them on to your children or sell them. It’s something else entirely when you end up inheriting your parent’s home. There are various financial considerations that you’ll have to keep in mind. If you have siblings who have inherited equal shares in the home, things can get even more complicated.
There are numerous options for deciding what to do with the family home. The three main ones that most people consider are selling the home, moving into the home, or renting out the home.
Selling your parent’s home
Chances are your parent’s house has increased in value since they first bought the home. However, a sale may open you up to capital gains taxes, although this won’t be an issue for some people. In general, beneficiaries receive a stepped-up basis when inheriting a home. That is, for tax purposes, they will start at the home’s fair market value. Taxes may need to be paid on any profit over the fair market value. If this is a concern, you may wish to sell the home for no more than its fair market value.
If there’s a remaining balance on the mortgage, you’ll have to pay this off at the time of the sale, along with any commissions, taxes, and other closing costs.
Moving into your parent’s home
Maybe your parent’s home is larger than your current living arrangement. Maybe it’s in a more desirable neighborhood. Perhaps you’re just sentimental. Regardless of your reasons for wanting to move into your parent’s home, understand that doing so can be a financial burden on its own. You may have to deal with increased property taxes. If it’s a single-family home, you’ll have to keep in mind the costs of ongoing maintenance and upkeep. You will also need to come to an understanding if your siblings or anyone else has inherited an interest in the house.
Renting your parent’s home
The popularity of short-term vacation rentals has provided property owners with more flexibility than ever when it comes to earning extra income. One doesn’t have to become a full-time landlord to derive income from a renter. Whether you choose to rent the home occasionally to travelers or decide on a longer-term option, you’ll want to ensure your use of the house complies with local zoning ordinances. You’ll also want to look into a landlord insurance policy.
There may be other options to consider as you decide what to do with your parent’s house. You should take the time to discuss your situation with a skilled legal professional. Together, you can determine the path the is best for you.