Inheriting a family property brings more than just the memories of time spent in the home. This transaction brings along the expenses associated with the property, and in some cases, these amounts can surpass your ability to retain the property.
Although it is a wonderful gift, inheriting real estate comes with a cost. There are ways to minimize the financial implications of being a beneficiary, though it requires preparing for the following costs.
A valuation determines the fair market value of the property. While the executor may pay for the appraisal from the estate’s proceeds, the cost could rest with the beneficiary. The valuation is important for determining gains for a potential sale or for property taxes.
2. Estate tax
Before a beneficiary takes ownership of the inherited property, the estate tax is due. If there is not enough cash in the estate to settle the tax, liquidation is an option. There is also the potential for a state inheritance tax to come from the beneficiary’s pocket.
3. Property tax
The rates for property taxes vary by location, and you could experience sticker shock when you see the rates in a Gulf Coast vacation home compared to your suburban residence. These taxes are due annually and could amount to thousands of dollars.
Should you decide to keep the home, general maintenance is a reality to keep it in livable condition. If the property becomes a rental, additional repairs, renovations and insurance policies can add to the cost.
There is a lot to financially prepare for when inheriting real estate. Prepare a strategy long before it is time to take possession of the real estate.