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Selling an Inherited Property in New York

Selling an Inherited Property in New York

It is difficult enough to lose a family member. It is even more difficult to deal with all of their estate assets or lack there of once they pass, espeically if there are liens or other debts attached to them. Many times, children or relatives of deceased owners of properties end up inheriting a property with debt from a reverse mortgage or unpaid property tax liens. If they do not have the money themselves to buy the property within a certain amount of time, the property then becomes at risk to being lost to the reverse mortgage bank or the county for unpaid taxes. Many times, the distributees (the heirs of the owner) think that there is no value to the home since it is underwater with the mortgage and liens and walk away from the property. They do not think that there is any value from the home and let the bank or county take it over. The property may need a lot of work and it is too much for the heirs, relatives or distributees of the owner to take on.

How much will you have to pay in taxes? Is there a will or will you need to deal with the probate process? But what does it take for a homeowner to sell an inheritance? Are there special steps that need to be taken to deal with this type of sale? This article will explain the process of selling an inherited property to (hopefully) make a profit.

How To Sell An Inherited Property in New York

So you’ve inherited a property and you’re not sure what happens next. In most states, the inherited property must go through a probate process so the courts can determine who is the legal owner. In New York, some title companies will accept heirship affidavits in lieu of a probate or administration proceeding. This means that two affiants, or people that know the family, can sign a statement claiming that to their knowledge, the heirs are the children or living relatives and that there is no one else more closely related than them to the owner.

Probate is done when there is a will and an executor has been named to carry out the duties of the estate in the will. Administration proceeding is when there is no will, and a relative steps up voluntarily to become appointed administrator on behalf of the estate to handle the matters. Once the administrator is appointed and letters or a decree has been granted by the judge, the court legally grants the administrator the rights to transfer estate’s assets. Depending on the state of the will (if there was one), this process can be very fast or very slow. If there are other heirs who do not sign the waivers allowing the administrator or executor the rights to obtaining letters, the process can be dragged out even longer. Nassau and Suffolk county take anywhere between 3-12 months on average.

  • Determine the Executor

For inherited properties with a will, establishing the executor of the estate should be straightforward. One of the most important aspects of a will is establishing an executor that is able to carry out the deceased’s wishes through the process of probate.  Any assets listed in a will can’t be sold until the will is validated by the Court but, once approved, the executor of the will is allowed to act on the wishes of the deceased. But if the will is contested or there is no will, the process might take longer as the Court gets involved. Sometimes, the court may require a bond be dispensed with on behalf of the estate in order to provide insurance for the court so that if anything comes up after the letters are granted, they are protected.

These administrators play a similar role as an executor; they are responsible for carrying out the wishes of the deceased as stated in the will, as well as paying off any of the estate’s debts and distributing any assets. They may also determine if any real estate assets will need to be sold to pay off the estate’s debts, including back taxes, mortgages, etc.

  • Working with Lawyers and Real Estate Agents

Probate is not a simple process which is why you’ll want an experienced lawyer to help you navigate the potential pitfalls of selling an inherited home. But once you have the probate court’s okay to move forward with the sale of the property, working with a real estate professional that has dealt with inherited homes before will be your next smart step. An experienced investor who specializes in estate or heirship sales with surrogate court experience will understand the nuances and regulations for this type of sale. The best part is that you can sell the property as is, quickly, for cash, with out having to do any repairs, or deal with end user buyers on the open market through multiple listing service.

  • Resolve Any Debts

When you hear the word “inheritance,” do you understand the reality of having to deal with a property that might have liens against the title, years of back taxes, as well as a reverse mortgage that does not leave you with the ability to make much of a profit after a sale? Sadly, dealing with a loved one’s passing often means dealing with their debt, whether that’s in the form of taxes, a reverse mortgage, or maxed out credit cards. Any assets you inherit must go to paying off that debt first before you can see one dime of the estate. While a house may seem like a huge asset, it also can be a huge money pit. An experienced estate advisor can help you research your options when it comes to dealing with an estate. Even if there is no equity in the property, and you do no think there is any money that can be made, you may be able to still walk away with something from the sale.

  • Clean & Restore the Home

Once ownership has been decided and the property is considered yours, your next step will be to decide whether you want to live in it, rent it out, or sell it. Many times, when a loved one passes they leave behind a house that is not in the best of shape. Whether the property hasn’t been kept up in the past decade and needs major cleaning and repair, or there were never any upgrades done and the house will need to be completely renovated to make it “market ready”, this is the part of an inheritance that is often forgotten about.

Do all heirs have to agree to sell the property?

No, the Heirs don’t have to agree to sell an inherited house or property if ownership has been established by a will or the probate court. But if ownership has not been established, such as with an estate with no will and/or a Court-appointed administrator, then all Heirs must agree to the sale. They would be able to transfer the property via heirship affidavits. This also includes properties that have been put up at auction by the Court to pay off the estate’s debts. If a buyer purchases a house at auction but one or more of the Heirs disagree with the sale, the purchase must be put on hold while the disagreement is worked out and a settlement is reached.

  • How to Settle a Disagreement between heirs or distributees of an estate

There are a variety of options for settling disagreements among Heirs over an estate, but the first step is making sure that a loved one has an executor or a designated administrator appointed to handle the estate. Having a point person who is there to make sure the deceased’s wishes are followed as set forth in the will can ensure that there are no arguments over how the assets will be dealt with. If there is no executor and the will is being disputed, your next step may be hiring a mediator. Having a neutral third party to help work out differences will be much more affordable than a legal battle in probate court.

  • Best Practices

But what if the issue is around the executor themselves? Disputes can occur when a family member is named as the executor or trustee of a will, causing strife with the other family members. If this has happened to you, an option is for the person to decline the appointment and choose an independent fiduciary, such as an estate-planning attorney, to administer the will. Stepping back while a neutral party steps in might not just keep arguments from cropping up, but might also give everyone the time and space to deal with difficult emotions before it permanently damages your family. 

How is inherited property taxed when sold?

State and local governments in the United States collected over $5.3 billion in revenue from estate and inheritance taxes in 2020. That’s a lot of taxes! But with laws and regulations different from state-to-state, you’ll want to do your research and contact a lawyer with knowledge and experience of taxes and estate planning as you deal with a surprise inheritance or you’re writing your own will. 

It is a common misconception that they would be liable for the estate’s debt if they do a short sale on it. If you are selling a property on behalf of an estate, and it is a short sale, there is no liability to taxes on behalf of capital gains since there are no gains to be made. Many heirs and relatives of owners are concerned that they will inherit the debt when they go to sell a property that they are the administrator or executor of that has incurred a lot of debt. They are standing in as the representative to the estate in order to transfer the property, but do not actually inherit or assume any of the estate’s debt whether from a reverse mortgage or unpaid taxes.

State Tax Laws

Each state has different laws regarding inheritances. In the case of the sale of an inherited property, states may take an estate tax, an inheritance tax, as well as a capital gains tax on your inheritance. Currently, twelve states have an estate tax, 5 have an inheritance tax, and one has both an estate and inheritance tax. These would only be incurred on property that actually has equity, not if it is sold as a short sale via a reverse mortgage or regular mortgage approval.

  1. Capital Gains Tax on Inherited Property

What is the capital gains tax and which states require it? The capital gains tax is paid on the appreciation of any assets that an heir inherits through an estate but it is only levied once the asset is sold for a profit, not when you inherit. This tax is then paid on the difference between the sale price and the purchase price of the property. If there is no or negative equity and it is sold as a short sale, the administrator and heirs are not required to pay capital gains since they are not the actual borrowers.

Most states require this tax paid on an inherited property, but there may be exemptions for individuals selling a property for less than a certain amount. An example is Washington State, where the capital gains tax is not levied on homes and/or properties sold for less than $250,000. There may also be other legal ways to get around or reduce the capital gains tax in your state, including reinvesting the money in another property through a 1031 exchange. Consult with a tax lawyer knowledgeable of the laws in the area you will be selling before proceeding with the sale of your property.

  1. Estate Taxes

An estate tax is a tax paid directly out of the estate to the state before anyone is able to inherit it. Worried that you might get a huge hit taken from the estate? Don’t worry! The estate tax has a minimum threshold which in 2023 was $12.92 million for individuals. This means that the government is not able to charge you an estate tax unless your total taxable estate is worth $12,920,001. The remainder is passed on estate tax-free. Despite having such a high threshold, each year more states repeal their estate tax laws, losing out on millions of dollars of revenue.

  1. Inheritance Taxes

Only six states have an inheritance tax, meaning that it is likely that you are in the lucky majority that won’t have to deal with this. But if you live in one of those six states – Maryland, Nebraska, Kentucky, New Jersey, Pennsylvania, and Iowa – you as a beneficiary/Heir to an estate will be required to pay taxes on your inherited assets and properties. But don’t worry – even if you live in a state that has an inheritance tax, you won’t have to pay a dime if the deceased lived in one of the 44 states that does not have this tax.

Documents required to sell an inherited property

To show legal ownership and place a property for sale, you will need to have a copy of the documents issued by the court that grant you the legal authority to act as the executor or administrator of the estate. These documents will establish your ability to manage the inherited property. Once a buyer is found and you are ready to close, you’ll need the deed, title insurance, or other relevant legal records to establish the legal ownership of the inherited property. If you sell to an experienced real estate professional or investor who is privy to how to handle these types of sales, they will be able to help you with whatever you need. This is opposed to selling the traditional way with a realtor who usually does not have the knowledge on how to obtain or handle these types of documents. We at Homeowners Resource Group know how to handle quick or short sales that include reverse mortgage and tax liens that need to be cleared on behalf of estates.

Do your research regarding what additional documents may be needed to sell an inherited property! Some jurisdictions may require additional property-related documents, including previous surveys, inspections, or any other relevant paperwork that pertains to the property’s condition or history. If you are selling as is to a cash buyer or real estate investor, they will handle these for you and you need not worry about going out of your way to clear title yourself.

Is there an easier way to sell?

Yes, there is! Homeowners Resource Group, Inc. is a direct real estate company that has built our reputation on helping homeowners sell their inherited houses for cash with less stress and less fees. Contact us today and get a competitive cash offer for an inherited house, condo, or property. We help homeowners sell to cash buyers in any condition, and we can also help with the convoluted process of selling a house in probate! Let us make your home selling experience as straightforward and stress-free as possible so you can move on with your life.

If you own a property that’s stuck in probate that you are ready to sell, call us at (631) 759-4408 day or night to get a competitive cash offer for that inherited home. We will help you sell your property in any condition and no matter what the estate’s financial situation might be. Even if the house suffered major damage in the last storm or was neglected for years and needs a large amount of upgrades to make it “market ready”, once you accept a fair cash offer, our team of experts will handle all of those expensive repairs so you don’t have to! We make selling an inherited house easy.

Call us!