What to do when you inherit real estate that you don’t want

Getting an inheritance when a loved one dies doesn’t always feel like a windfall — especially when it’s real estate that you don’t want. If you live in a state with an inheritance tax on property, you might not want to deal with a tax bill, or you’re dreading the hassle of selling the property. There’s also the possibility that just have no idea what to do with it.

The reason why you don’t want to keep property that someone has left you doesn’t really matter. The important thing to know is you have options. You simply have to learn how to navigate a tricky inheritance situation.

Observe Your State's Waiting Period

The loss of a loved one can be an emotional time, so you shouldn’t rush any decisions about property you’ve inherited. In fact, you might be forced to wait if you want to sell unwanted property. For example, “in Arizona, usually there is a 90-day waiting period before a home can be sold,” said Michael Zschunke, a Realtor in the Phoenix area who sells inherited properties. He recommends working with an attorney and real estate professional to evaluate your options before taking any action.

Related: My Family Avoided an Estate Conflict — Will Yours? 

Avoid Hungry Real Estate Sharks

Another reason to take your time and work with professionals is to avoid making costly mistakes. Avi Sinai, owner of private real estate lending company HM Capital, said you should never sell unwanted inherited property right away. “Nothing gets real estate investors drooling like children selling their parents’ real estate after they pass away,” he said. “Investors love those because they assume the new owners know nothing about the true value of the property, and, therefore, they can purchase the property for a discount.”

Find Out the Value of the Property

Before deciding what to do with inherited property you don’t want, find out how much the property is worth. “Now that you hold the title to the real estate, you need to know the market value of the property,” said Matt Halper, a broker with commercial real estate brokerage firm Kiser Group in Chicago.

An appraisal might have been conducted as part of the valuation of the estate left by the person who gave you the property. But that appraisal might not reflect the property’s market value, Halper said. Getting a real estate broker to value the property might help you decide if you want to sell it and how you want to sell it. 

RELATED: Take a look at some of the tax breaks that are no longer available: 

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5 tax breaks no longer available

1. Personal exemptions

For 2017, eligible taxpayers could claim an exemption for themselves and a spouse as well as exemptions for dependents. Each such exemption reduced taxable income by $4,050.

For 2018, however, there are no personal exemptions. Tax reform suspended them, basically meaning it made them temporarily unavailable.

Specifically, personal exemptions and many other tax breaks that were suspended by the Tax Cuts and Jobs Act will be unavailable for tax years 2018 through 2025.

2. Moving expenses

You cannot deduct moving expenses from your 2018 taxable income, either. Tax reform suspended this deduction for everyone except active-duty members of the U.S. armed forces who are ordered to relocate.

“During the suspension, no deduction is allowed for use of an automobile as part of a move,” states IRS Publication 5307, which outlines how tax reform impacts individuals and families in tax year 2018.

Tax reform also suspended the exclusion for qualified moving expense reimbursements for everyone but active-duty military members. So, if your employer reimbursed you for moving expenses in 2018, that reimbursement will be considered taxable income.

3. Casualty and theft losses

Tax reform modified the deduction for net casualty and theft losses, making it available only to taxpayers who suffered such losses that were attributed to a federally declared disaster.

Other requirements for this deduction remain in place, however.

“The loss must still exceed $100 per casualty and the net total loss must exceed 10 percent of your [adjusted gross income],” states Publication 5307.

4. Job-related expenses

Previously, folks who itemized their tax deductions could write off what the IRS refers to as miscellaneous deductions to the extent that they exceeded 2 percent of such taxpayers’ taxable income. But miscellaneous deductions are among those that have been suspended.

Miscellaneous deductions include unreimbursed employee expenses, such as:

  • Uniforms
  • Union dues
  • Business-related meals
  • Business-related entertainment
  • Business-related travel

So, if you paid for such expenses out of your own pocket in 2018 and were not reimbursed for them by your employer, you cannot write them off on your next tax return.

5. Tax preparation fees

This is another miscellaneous deduction and thus has been suspended. It includes:

  • The cost of tax preparation software programs
  • The cost of tax publications
  • Fees for filing tax returns electronically

So, if you paid any of these expenses in 2018, you can’t write them off on your next tax return.

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Sell With a Realtor

You can turn your unwanted inherited real estate into cash by selling it. To get top dollar, enlist the help of a professional. “Ideally, you want to go through a realtor because a realtor will get you a higher price,” said attorney Kevin Goff of Goff Law Firm in Bowling Green, Ky.

Selling the property with a real estate agent also might make the process easier if you don’t live in the same city where the property is located.

Discover: 5 Home-Buying Mistakes I Never Knew Before Becoming a Realtor

... But Remember Commission and Other Costs

Remember, however, that you’ll pay the price for a smoother, more convenient process. The real estate agent will get a commission — typically 6 percent of the property’s sale price.

And for all the convenience the realtor provides, you might still have to take steps to get the best price possible, such as making repairs, adding fresh coats of paint and touching up the landscaping.

Sell As-Is at Auction

If your goal is to sell your inherited property quickly, Goff said you could unload it at auction. You might not get as good of a price as you would by listing it with a realtor. But you can save yourself some of the hassles of making it appeal to buyers by selling it as-is at auction.

Sell the Property to an Investor

Selling unwanted inherited property to a real estate investor is another quick way to make money without having to spend your time and money to prepare the property for sale. “An investor will buy your home ‘as-is,’ allowing you to walk away from the property without making any repairs,” said Shawn Breyer, owner of Breyer Home Buyers in Atlanta. “Some investors will even let you sell without cleaning out the inherited house. You can keep what you want and leave the rest.”

... But Make Sure They're Experienced

That said, Breyer recommends that you work with an investor that has experience with buying inherited homes that must go through the probate process. “They will be able to guide you through the process so that you do not encounter any hiccups,” he said.

Read: How ‘Shark Tank’s’ Barbara Corcoran Became the ‘Queen of New York Real Estate’

Rent the Property to Others

If the property you inherit is in good condition, you could turn it into rental property to create a stream of passive income. However, the rental income might not be that passive if you plan to manage the property yourself, said Goff, who owns 10 long-term rental properties. “There’s a learning curve to it.”

Hire Professionals to Manage Your Rental Property

If you don’t have time to deal with tenants or if the property is in another state, Goff recommends using a management company to oversee the rental property. Expect to pay a management company about 10 percent of your rental income, he said.

Fix Up the Property and Flip It

If you inherit property that isn’t in good condition, you could take advantage of the opportunity to fix it up and flip it for a profit. You stand to make the most money if you’re the DIY type and can renovate the property on your own.

... But Remember Capital Gains Tax

If you live in the property you’re flipping for at least two years before you sell it, up to $250,000 of the profit is tax-free if you’re single, and $500,000 in profit is tax-free if you’re married and file taxes jointly, Goff said. Otherwise, you’ll have to pay capital gains tax of up to 20 percent on the profit.

Keep Reading: How to Flip a House

Make It a Vacation Rental

You might be able to make more money from your inherited real estate by turning it into a short-term vacation rental by listing it on websites such as Airbnb or HomeAway. Data from Mashvisor, a real estate data analytics company helping investors find lucrative traditional and Airbnb rental properties, shows that the return on investment for short-term rentals exceeds the rate for traditional rentals, said Daniela Andreevska, marketing director at Mashvisor. “However, you have to check the regulations in your location to make sure that vacation rentals are legal and to become aware of any existing restrictions or fees,” she said.

You’ll also need to invest in furniture, linens, plates, utensils and other necessities for guests, said Goff, who owns a vacation rental property in addition to long-term rental properties. And even though the return can be greater on vacation rental properties, the income isn’t as guaranteed as it is with long-term rentals, he said.

Renounce or Disclaim the Property

If you don’t want to deal with the hassle of selling or renting the property, you can reject it by renouncing or disclaiming it. “No one is required to accept an inheritance,” said Philip J. Ruce, an attorney with Stone Arch Law in Minneapolis. “It can feel strange contemplating the rejection of an inheritance, but it is more common than you think.”

With a renunciation or disclaimer, it’s as if you had died before receiving the inheritance, and the property passes to the next person in line to receive it as spelled out by the original property owner’s will or state law. So you have no say over where the property goes, attorney Ruce said. Typically, you have a certain amount of time in which you can disclaim inherited property, and you have to record the disclaimer with the county recorder of deeds office, he said. It’s best to work with an attorney to disclaim property, Ruce said.

Guess Who: 15 Celeb Kids Who Inherited Huge Estates

Transfer the Property With a Quitclaim Deed

If you don’t want inherited property but want to have a say in who gets it, you can use a quitclaim deed to transfer the property to someone else. “A quitclaim deed is a legal instrument that is used to transfer interest in real property very quickly and easily,” said David Reischer, an attorney and CEO of LegalAdvice.com. No money is involved in the transaction, no title search is done to verify ownership and no title insurance is issued, he said. Basically, you give away the property with no warranties.

... But Remember Gift Tax

Be aware, though, that the IRS will view your bequest of real estate as a gift, which means you might be subject to the federal gift tax. If the value of the property you gift is more than $15,000, you have to file a Form 790. That doesn’t mean you’ll owe taxes, though, unless you transfer property worth millions of dollars. Although the annual exclusion amount is $15,000, the lifetime exclusion currently is $11.4 million.

Learn: The Top 15 Strangest Inheritances

Donate the Property

You could donate property you don’t want to a charitable organization to get a tax deduction. If you itemize on your federal tax return, you can claim a deduction for the fair market value of the property, the price at which it would sell. You’ll need to get an appraisal by a professional appraiser and file Form 8283 if you claim a deduction for a donated property of more than $5,000, according to the IRS.

Do Nothing

You could simply do nothing with real estate you inherit that you don’t want. If you don’t pay the property taxes, the city or county taxing authority could sell the tax lien. The person who buys the lien can try to collect it from your or foreclose on the property, Goff said.

... But Remember Liability

However, you’re taking a risk by neglecting the property and letting it go to a tax sale. “If it’s an old building, and someone went in there and got hurt, you could have a liability issue,” Goff said. Then you could get sued, which could end up costing you money.

Click through to read money secrets about dying that no one wants to talk about.

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This article originally appeared on GOBankingRates.com: What to Do When You Inherit Real Estate That You Don’t Want

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