What happens to your parent’s house after they die? This is a fair and timely question that many of us ask. We all know the feeling, whether you are close with your parents or not, when it comes to their house. For some people, there is a nice sense of wonder about what it looks like inside and some people just want to get rid of it as soon as possible.
Do you have to go through probate when someone dies?
Yes, some states require that some or all property of the estate goes through probate. The probate process is a legal process where ownership of property is transferred to heirs. The way this varies among states has to do with whether the decedent (the person who died) had a will and/or whether they used a trust. A will name an executor, someone designated to carry out your wishes for distributing your property after death according to local law; whereas, if no will exists then the state determines how the assets are distributed among family members. A probate attorney in your state may be able to answer this question for you.
What is fair market value?
Fair market value (FMV) oftentimes refers to the price at which property would change hands between a willing buyer and willing seller when both parties have reasonable knowledge of the relevant facts; it is often used in the context of real estate.
What is the taxable estate worth?
The fair market value of an asset (including real property) at the time of death is included in your gross taxable estate. The taxable estate, or gross estate, includes not only the fair market value of assets owned by the decedent but also any debts owed by the decedent.
If you live in a state that requires probate and the decedent did not leave a will then their assets will be distributed according to intestate succession laws. In this situation it’s important to know whether you’re dealing with separate property and community property because each may be treated differently; however, if there was a valid common law marriage (that wasn’t terminated) then all property acquired during that time is considered community property.
Pros and Cons of Estate sale
Pros of Estate Sale
- No travel expenses or time lost finding bidders
- All parties come to one place and bid fair market value, no need for third-party appraisal
- Property usually sells with a quickness because fair market value is presented to all parties
- If you have enough money for your personal property, it can be sold quickly.
Cons of Estate Sale
- Some items may not be appropriate for sale to the public
- Estate Sale is time-consuming and stressful
- Property sold by estate sale may still require a third-party appraisal
When selling a parent’s house after their death it is important to know whether you are required to go through probate. This will help determine how the fair market value of the property is determined and what type of payment methods, if any, can be used in the transaction. Selling the home directly to a potential buyer may seem like a simple task but remember that even though this person is buying an asset from your parent’s estate they also become entitled to whatever personal possessions remained at the home. An estate sale or fair market value, either way, the parents’ home will likely be sold once an offer is made.
A third-party appraisal may still be needed even if the fair market value is determined by an estate sale or fair market value so consider requesting one before any final decisions are made.
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How inheritance tax works
Tax implications of selling parents’ house mean you need to pay taxes on the fair market value of all assets in their estate. If you are not an heir to your parent’s house, you will need to file a federal inheritance tax return (IRS form 706) with the IRS if the property is valued at $600,000 or more; however, there is no actual tax due on property that is left to someone outside your immediate family.
Inheritance tax is a tax on the right to receive property, money, or other assets from a deceased person’s estate. In most countries with inheritance taxes, the tax implications are imposed only when the estate of the deceased person exceeds a certain value threshold. Worldwide each year between 3 and 4.5% of total deaths result in an inheritance issue according to www.worldbank.org
A fair market value appraisal will determine fair market value for purposes of figuring out how much your parent’s estate owes in federal (and state) taxes; it should be conducted by someone licensed by your state as an appraiser or public accountant should be able to do this job effectively.
It is not the same with inheritance taxes. An estate tax is calculated by taking the fair market value of the estate and multiplying it by a tax rate (for 2015, this rate is 40%).
If the fair market value is at least $5.43 million in 2015 then the federal estate tax will apply; however, if the fair market value is less than $5.43 million then the estate may still be subject to state inheritance taxes.
If an owner dies without a will or if their will does not cover the fair market value of the property at the time of death then probate court would be required to determine how assets are distributed after death.
The fair market value of all probated inherited property must usually be determined and reported on federal estate tax returns (IRS Form 706) that are filed within 9 months after the date of death. Estate taxes also include the fair market value of the property that is distributed to inheritors prior to the deadline.
Reduce Estate tax
If you are inheriting a property that is worth more than the fair market value through probate, there are ways to reduce estate tax liabilities.
For example, if you inherit a home and sell it within 3 years of the death of the deceased owner then you will have to pay capital gains tax on any profit made from selling this type of asset. However, if you keep the home for at least 2 years after the date of death then capital gains tax will apply to fair market value instead.
Capital gains tax
A capital gain is a difference between fair market value and the purchase price. If the fair market value is less than the purchase price then the gain is a capital loss. Capital gains rates depend on total income. It’s important to note that capital losses and gains affect your federal and state (if applicable) tax rate, so be sure that you’re aware of these rates when determining how much to sell for! Capital gains taxes also apply if the fair market value is greater than the purchase price.
Capital gains are taxable for all federal income tax purposes. Income earned from capital assets is included in income unless it’s specifically excluded or taxed at a different rate. Income taxes vary depending on what type of income is earned.
Cheap fixes to sell a house fast
If you’re in need of cash but don’t want to spend more than necessary then consider these simple fixes that will help your home sell fast.
Fix the exterior of the property
When trying to sell a house quickly, people often say that it is all about curb appeal, which means making your home look as appealing as possible from the outside. You can start by mowing the lawn and trimming any trees or bushes on the property. This can be done yourself or you can hire someone to do this for you. It also doesn’t hurt to power wash the exterior of your home and any walkways.
Painting the exterior is another great way to make a house look better from the outside. A fresh coat of paint can go a long way in making a house look new again and it’s not that expensive either. Again, you can do this yourself or hire someone else to do it for you if you don’t feel like getting your hands dirty or you just want some more free time.
Staging your property for sale
Another fair market value tactic used by many people who are trying to sell their homes quickly is staging their property. This means setting up the rooms inside of the house so that they look as appealing as possible. You can also add some plants and other decorative elements inside the house to make it look spruced up.
Attracting potential buyers
Another fair market value tactic used by many people who are trying to sell their homes quickly is attracting as many potential buyers as possible. This means that you should definitely list your home on real estate websites like Zillow, but you should also advertise your home in newspapers and post fliers in places where your neighbors will see it. Don’t forget about word of mouth either! You never know which one of your family members or friends might have someone looking for a property just like yours.
Real Estate Agent vs FSBO?
Real Estate Agents
A real estate agent is a fair market value option for people who have the time to take the steps required to sell a property using an agency. It’s important to note, however, that you will be responsible for paying a commission based on a percentage of the sale price. The commission fee varies from state to state and even from county to county within some states. A real estate agent also handles the paperwork, advertising, and negotiations necessary to sell your property.
FSBO – For Sale By Owner
An FSBO (for sale by owner) transaction means that you’re selling your parent’s house without going through an agency or realtor. This method may be great if your home needs minimal cosmetic changes since you will save money by not having to pay fair market value commissions! You can shorten your fair market value process by holding open houses and advertising on real estate websites and in the newspaper. However, fair market value transactions may be risky because it’s hard to know if you’re getting a fair price or not.
When selling a parent’s house as an FSBO, don’t forget that you will have to pay fair market value sales tax as well as any other misc. fees such as transfer taxes (depending on your state) and recording fees (also depending on your state).
Need to sell the house after the death of a parent?
The process of selling your parents’ property can be physically and emotionally draining. It also feels overwhelming as many things need to be done, from a rough sort of the decedent’s things to be selling their home for the best price. There are many considerations to take into account and the right decisions need to be made at every step for things to go smoothly and you might feel overwhelmed by this. If you would like more information about any specific aspect of what is required during the sell-a-home process after your parent dies, please do not hesitate to reach out, We buy houses and help property owners like yourself who may not know where to turn or what options they have available to them with all the professional help they might need. Want to sell your house but real estate agents charge so much closing costs? ASAP Cash Offer can most certainly help you! Just Fill up the form below, or call us at (805)427-8312 and you will receive a fair cash offer for your home within 24 hours, with no hidden fees or closing costs!