Selling Inherited Property: A Simple (but Complete) Guide

Selling an inherited property isn’t like a typical home sale.

The process can be more complex and emotionally challenging.

And there are more factors to consider.

Will I need to pay taxes?

How does the process of selling an inherited house work?

Does the property need to go through probate?

And how do I handle potential issues with family members?

These concerns are common –– but can be overwhelming.

That’s the bad news.

The good news?

This comprehensive guide will address those concerns (and a lot more).

Here’s everything you need to know about selling an inherited property.

What to know before selling an inherited property

Gaining knowledge about specific aspects of selling a house you’ve inherited before starting the process can help you:

• Make better decisions throughout the process.
• Avoid potential legal and financial ramifications.
• Secure the best outcome for your sale.

Here’s what you need to know before selling inherited property.

Understanding taxes when an inherited property is sold

There are three different types of taxes you should be aware of when selling inherited property:

• Capital gains taxes
• Inheritance taxes
• Estate tax.

Inheritance tax isn’t common as only these six states implement it:

• Iowa (currently being phased out)
• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania.

Plus, the deceased person’s spouse is typically exempt from paying an inheritance tax (and sometimes, so are their children).

Estate taxes are also rare as they’re only applied to inherited assets worth over $13.61 million (2024).

The most common tax when you sell inherited property?

Capital gains.

Capital gains tax

The tax liability for capital gains is calculated by subtracting the original purchase price of a taxable asset from the price it sells for.

But the original purchase isn’t used to calculate your tax liability when you sell an inherited home.

Instead, the IRS lets you use something known as a “stepped-up cost basis.”

The “step-up” replaces the original purchase price (original cost basis) of the property with the fair market value at the time of the owner’s death (new cost basis).

That fair market value is determined by an appraisal (more on this in a minute).

Example of capital gains tax when you sell an inherited home

Let’s say you’re selling a home you inherited from your parents.

Your parents bought it for $200,000 –– and it’s worth $1,000,000 at the time of your parents’ passing.

And let’s say it sells for $1,100,000.

Instead of starting to calculate the tax liability at $900,000 ($1,100,000 – $200,000), you’d start by subtracting the stepped-up cost basis of $1,000,000 from the selling price of $1,100,000.

But you also get to subtract the closing costs (real estate commissions, title/escrow fees, etc.) and home improvements.

In this example, let’s say those expenses come out to $65,000.

That means you’d pay capital gains taxes on the $35,000 profit ($1,100,000 – $1,000,000 – $65,000).

How much would you owe?

This varies based on the estate’s income or the income of you or the trust.

The IRS considers inherited property a long-term capital gain.

So the federal tax rate you’d pay could be either 0 percent, 15 percent, or 20 percent.

If you don’t make a profit, you should be able to claim that loss on the tax returns.

But it’s best to seek advice from a tax professional for your specific situation.

Some inherited properties need to go through probate

Probate is the legal process for distributing assets from an estate when the owner dies.

It’s typically needed when the owner of the estate passes away without using a legal document to name beneficiaries.

Generally, there are two occasions where an inherited home can skip the probate process:

• The home is in a living trust, where a new trustee has been appointed and the trust document clearly outlines the beneficiaries.
• The property is jointly owned, such as when a parent added the child’s name to the deed before they passed.

What if a property is being bequeathed to you through a will?

Then it will likely need to go through the probate process, unless specific measures to avoid probate were established.

But this process is typically much less complicated (and shorter) than managing an estate without a will, which usually has to go through probate court.

Agent referrals from an attorney are usually biased

Some inherited property sellers get a referral for a listing agent from their estate attorney.

But this is usually a “scratch my back, and I’ll scratch yours” arrangement. 

Meaning that the attorney and agent refer clients to each other.

Why does this matter?

Because a real estate agent recommended by an attorney might not be the person best-qualified to sell the property.

That’s not to say that they definitely aren’t.

But there are other key qualifications you should look for in an agent.

I’ll tell you what these are shortly.

How to sell an inherited house

Understanding how selling an inherited home works will make the process less confusing.

And tackling the steps with the right approach will put you in the best position to maximize your inheritance in the shortest amount of time.

Here is how to sell an inherited house.

1. Get a time of death appraisal

The first thing to do when selling an inherited house is to order a time of death appraisal.

A time of death appraisal, also known as a “historical appraisal,” is used to determine the value of the home at the time of the deceased owner’s passing.

You’re going to need this for tax purposes.

The appraised value is used as the “stepped-up cost basis” from which your capital gains tax liability will be calculated after the property has sold.

According to the IRS, a time of death appraisal must be completed within six months of the deceased person’s passing.

And it must be done by a qualified appraiser. 

There are two ways to order a time of death appraisal:

1. Contact a local appraiser yourself (you can search online or use the directory search tool from the American Society of Appraisers).
2. Get a recommendation from your real estate agent.

You’ll want to keep a copy of the appraisal for your records and to file tax returns.

2. Remove belongings from the property

Cleaning out a home you’ve inherited is often one of the most stressful and time-consuming phases of the selling process. 

Especially if you’re selling a house after the death of a parent.

But it’s one of the most important.

Why?

Because potential buyers will need to envision themselves living in the property.

And it’s much harder for them to do that when someone else’s belongings are still strewn about. 

Here are a few things you can do to remove belongings from the property:

1. Organize items: Start by organizing items into three separate categories: keep, sell, trash. This will help streamline the process. 
2. Use social media to sell (or give away) items: You can use apps such as Facebook Marketplace, Craigslist, and Nextdoor to sell personal belongings. These are also a great resource to give away anything not worth selling.
3. Sell valuable items through an auction: You can find a local auctioneer on auctioneers.org who can handle everything for you.
4. Set up an estate sale: An estate sale can be a great way to sell multiple items at once. You can browse websites such as estatesales.org to find a company that can come in and do it for you.
5. Bring in a junk hauler: Finding someone to remove any trash/junk shouldn’t be that hard. You can Google something such as “Junk hauler near me” or browse websites like Craigslist or Yelp.

3. Hire the right real estate agent

The right real estate agent will put you in the ultimate position to boost your inheritance.

But the key is knowing how to choose the right agent when selling a home.

Here are several key qualifications you should consider when deciding which agent to partner with to sell your inherited home.

• Experience selling inherited properties: An agent who knows the ins and outs of selling an inherited home will be able to guide you through the process much better than an agent without the same experience.
• Relevant selling experience: Make sure the agent has experience selling homes in the area where the property is located and in a similar price range. Their familiarity can help shape the right marketing strategy.
• Reputable track record: Take the time to verify that they have a roster full of satisfied selling clients. You can do this by either reading online reviews or asking the agent for referrals of past clients.
• Low dual agency rate: In real estate, a dual agent represents both the buyer and the seller in the same transaction, allowing the agent to double-dip on commission. You should avoid listing agents who have a high dual agency rate because these agents have a history of prioritizing the amount of money they’ll make from the sale over fetching the highest price for their seller clients.
• No contract commitment: A good real estate agent should allow you to part ways with them at any time if you’re unhappy with their performance. This type of out clause should be outlined in your listing contract. Ultimately, it incentivizes the agent because they’re not guaranteed a commission unless the house sells.

4. Decide on making improvements or selling as-is

Many inherited houses can benefit from an improved appearance before being listed for sale.

But not everyone who inherits property is in a position to do so.

And the family members or beneficiaries involved might have differing opinions.

An approach that works for many people who inherit property is this…

First, have a discussion with the other parties who are a part of the home sale.

The goal is to have everyone on the same page about whether the home’s appearance should be improved –– or whether to sell the property as-is.

If the decision is to make improvements, then the next step is to game plan with your realtor.

The key is to focus on the upgrades that will make you more money.

And not to spend time and money on things you shouldn’t fix when selling a house.

You’ll get the right advice if your real estate agent is experienced and trustworthy.

The most important thing is making sure that you and your fellow beneficiaries are aligned in how you’d like to proceed in preparing the home for sale.

5. Set the right list price

The price you decide to list the property for is critical.

Overpricing is the number one reason why a house sits on the market.

While underpricing can potentially reduce the amount of money you get when you sell your inherited asset.

This is another important step in the process where you’ll want to rely on your agent’s expertise.

They should provide you with a comparative market analysis (CMA).

A CMA compares your property to others that have recently sold in the area.

A good agent will conduct this analysis by comparing key features of the most comparable homes to your property.

But here’s the important thing…

In order to arrive at the right property value, you need to make the right price adjustments for the differences in key features.

This means placing the right value for differences such as square footage, lot size, condition, road noise, schools, etc.

An accurate market analysis will give you an objective assessment of the home’s value that all of the beneficiaries can use as a guide to reach a consensus.

6. List the property for sale

Marketing the property for sale is your agent’s job.

But there are things that you can do to help that can lead to a faster and more profitable sale.

For one, it’s a good idea to tell your agent that you don’t want them to market the property as being “inherited.”

Why?

Because a serious buyer may not put in their best offer if they know the property was handed down to the seller.

Too often, interested buyers will inquire about why a property is being sold.

The reason they ask this is to gauge the urgency of the seller.

If they know that the home is inherited?

Many will assume that you want to offload the property to collect your inheritance, leading to an offer that they believe is a “good deal.”

Making the property easily accessible is another thing you should prioritize.

Because the easier it is for buyers and their agents to view the property, the better the chances are that you receive a solid offer in the shortest amount of time.

7. Analyze and negotiate offers

Getting an offer when you sell your inherited house will be exciting.

But it might also be nerve-wracking.

Your agent will advise you when they have an offer in hand and discuss the details with you.

Here are a few things you’ll want to pay attention to:

1. Price: The price is important, but it isn’t the be-all and end-all. There are other important factors you’ll want to consider.
2. Down payment: In addition to the sale price, the buyer’s offer will also state how much they’re putting down. Typically, larger down payments lead to a more secure real estate transaction.
3. Contingencies: The buyer has the option to make the offer contingent on one or more conditions that must be met before the sale closes (inspection, appraisal, loan). Discussing the potential drawbacks of any buyer contingencies with your agent can help you determine how to respond to the offer.
4. Timeline: The buyer’s estimated closing date will give you an idea of how long it may take to close the sale. Shorter timelines are preferable because they reduce your carrying costs on the property.

If there are other beneficiaries involved, now is the time to discuss the details of the buyer’s offer with them.

The important thing to keep in mind here is that not everyone may agree on how you should respond to it.

You can avoid disagreements by ensuring that your agent gives you a list of the pros and cons of the offer.

Then strategize with your real estate agent and other beneficiaries about whether to accept, decline, or counter the buyer’s offer.

8. Close the sale

There are several milestones you need to complete after accepting an offer. 

Some of these include:

• Ensuring the buyer makes their initial deposit 
• Conducting the buyer’s appraisal 
• Removing any buyer contingencies 
• Making sure the buyer’s loan is fully approved.

Your agent should be on top of these, while keeping you updated on the progress.

The primary beneficiary or heir, whether through a will or trust, will be responsible for signing the final documents. 

This is usually coordinated by the real estate agent and escrow company. 

The sale becomes official once the grant deed is recorded with the county where the property is located.

And once that happens, the escrow company will send you the proceeds, typically by wire transfer or a cashier’s check, within 24 hours.

What to do after selling inherited property

There are several actions you should take after you sell your inherited house.

These can vary based on individual circumstances and can prevent financial and legal consequences.

Manage tax obligations

Addressing the responsibilities for capital gains tax is a concern for most people selling an inherited house.

But you can get this over with in three simple steps:

1. Gather the necessary documents: You’ll want to have the time of death appraisal, a copy of the final settlement statement, and receipts for any home improvements. The final settlement statement shows your final sale price and itemizes the closing costs; it can be obtained from the title company or your agent.
2. Consult with your tax specialist: Give the documents to your tax consultant and ensure you address any concerns or questions. You should get guidance about whether you need to pay capital gains tax, how much you’ll need to pay, and where you should send the payment for anything due.
3. Plan for payment: Set aside funds from the proceeds of the sale for how much tax you owe. You can make the capital gains tax payment early to get it over with, or make the payment when you file the tax return.

Divide proceeds among beneficiaries

Ensuring that all distributions are fair, transparent, and in accordance with the legal directives is crucial.

Because it can backfire on you if they’re not.

Start by letting any additional beneficiaries know how much they’ll be receiving and when.

Doing this before distributing the proceeds can prevent nasty disagreements.

If the property sale was part of an estate or trust with multiple beneficiaries, you should distribute the proceeds as outlined in the will, trust, or estate plan.

If the will or estate plan doesn’t specify the distribution, the proceeds should be divided according to the relevant inheritance laws.

Make sure to handle this step with transparency and fairness to avoid disputes among heirs or beneficiaries.

Close out the estate

You’ll need to handle some specific tasks if the property sale was part of settling an estate.

The key steps involved generally include:

1. Confirm outstanding debts have been paid: Make sure that all outstanding liabilities have been paid for. This may include mortgages, property taxes, utility bills, or any other debts that the estate was responsible for.
2. Complete tax filings: Ensure all tax obligations, including any estate and capital gains taxes, are fully paid and filed.
3. Verify payment distribution: Get confirmation from other beneficiaries that they have received payment. Follow the will’s directives or state laws to distribute any remaining assets among beneficiaries.
4. File final documents: Submit final accounting and other necessary documents to the probate court to officially close the estate. The personal representative is responsible for doing this.

Tips for selling an inherited house

Navigating a successful sale of an inherited property hinges on employing the right strategies.

Here are some tips to help guide you.

Don’t complete non-mandatory selling disclosures

All homeowners are required to fill out certain disclosures when selling a home.

These forms differ by state but are all very similar.

Several of the disclosures have specific questions the homeowner must answer about the property they’re selling.

But it’s slightly different for property owners who sell an inherited house.

They’re generally exempt from having to answer certain questions because the property hasn’t recently been their primary residence.

It’s almost always best to avoid answering these questions.

Why?

Because it increases your legal risk after the property is sold.

The new owner can take legal action if they think you were dishonest when completing the forms.

So don’t complete any disclosures or reveal any information that you’re not required to.

The best thing to do is seek guidance from your realtor.

Be aware of cash buyer solicitations

Many cash buyers are investors who see inherited properties as easy prey. 

They know that the new owner often wants to dispose of the home as quickly as possible.

So they swoop in and make a cash offer that seems appealing.

The problem?

Cash offers from off-market investors are typically criminally low.

The goal of any real estate investor is to make a profit.

And in order to do so, these are the things they consider when determining how much to offer:

• Repair costs
• Upgrades
• Carrying costs (property taxes, homeowners insurance, etc.)
• Real estate commissions and closing costs when selling
• Market risk
• Potential resale value.

This is why offers from cash buyer investors often lead inherited property sellers to leave tens of thousands –– sometimes hundreds of thousands — of dollars on the table.

You’re going to be much better-served with an on-market transaction if your goal is to maximize the proceeds for your inheritance.

Establish a clear plan with family members

Receiving an inherited property can sometimes break relationships, even familial ones.

But the chances of a major dispute can be greatly reduced if everyone is on the same page from the get-go. 

You can do this by having a clear plan that includes:

• An opportunity for everyone to give their opinion: As you start the process, make sure everyone knows that their opinion is valuable and that you all agree to be open about differing thoughts. There will be less of a chance that someone won’t feel heard if everyone is able to speak their piece.
• Confirm the decision-maker: Typically, there is one person in charge of making the decisions throughout the selling process. Clarifying this from the get-go will make it much more difficult for anyone to get upset if there are any disagreements.
• A potential buyout: Sometimes one beneficiary may want out or cause a conflict. Offering a buyout that is beneficial for all parties could minimize a disaster and help you avoid prolonging the process.
• Mediation as a backup: Sometimes having a neutral third party get involved will be enough to settle disagreements. Letting everyone know that mediation is a possibility should reduce their chances of wanting to initiate any potential conflict.

The bottom line

Selling an inherited house may feel like a complex process, but it doesn’t have to be. 

Use this guide as a roadmap as you navigate the steps.

The key is taking the right approach and having the right agent by your side.

Seeking assistance to guide you through the process?

Discover more about how our no-cost and no obligation agent screening process can match you with a top local agent who has experience selling inherited properties.

FAQs about selling inherited property

Should I sell an inherited property?

The decision to sell or keep an inherited property hinges on your personal circumstances, tax implications, and goals. If the property aligns with your living needs or investment strategy, retaining it could be beneficial. However, if managing it from afar, relocating, or becoming a landlord doesn’t appeal to you, selling may be the more practical choice. Consider consulting with financial and real estate professionals to evaluate your options thoroughly.

Is there a time limit on selling inherited property?

No, there is no legal time limit on selling an inherited property. You can sell it whenever you choose. However, it’s important to consider ongoing costs like taxes and maintenance and potential changes in market conditions that can impact the property’s value over time and the amount you might need to pay in capital gains tax.

Can I sell my share of an inherited property?

Yes, you can sell your share of a property you’ve inherited. However, this requires agreement from all co-owners or legal action if you can’t reach a consensus. It’s important to consult with a real estate attorney to understand your rights and the best course of action.

What happens to the mortgage on an inherited property?

When you inherit a property with a mortgage, you assume responsibility for the loan. You can choose to continue making payments, refinance the mortgage under your name, or sell the property to pay off the debt.

How do you determine the fair market value of an inherited property?

The best way to determine the current fair market value of an inherited home is to get a comparative market analysis from an experienced real estate agent. Another option is to have an appraiser provide their opinion of the property’s current value. If you’re trying to establish the value at the time of the original owner’s death, then you’ll need to get a time of death appraisal, which is required to determine a taxable gain.