We inherited a house
The house is almost always the most emotionally charged asset in an estate — and the most complex. Here is every option explained by a licensed realtor who has seen all of them play out.
Check for a Medicaid lien, a reverse mortgage, or any other encumbrances on the property title before making any decisions. A title search costs $150–$300 and can save you from a very expensive surprise. Do this first.
What you can do with inherited property
Sell the property
Most common- +Converts an illiquid asset to cash immediately
- +Ends ongoing carrying costs (taxes, insurance, maintenance)
- +Eliminates future disagreements about the property
- +Step-up in basis often means little or no capital gains tax
- −Emotionally the hardest — selling the family home feels final
- −Market timing may not be ideal
- −If multiple heirs disagree, the sale process can be contentious
Keep and rent it
Income option- +Generates monthly income split among heirs
- +Property appreciation continues to benefit the family
- +Preserves the property if emotional attachment is high
- −Requires an agreement on management responsibilities
- −Landlord headaches (maintenance, tenants, vacancies)
- −One heir often ends up doing all the work
- −If heirs fall out, a co-owned rental property is difficult to exit
One heir buys out the others
Clean exit- +Other heirs get cash; one heir gets the property
- +Cleanest resolution — no ongoing co-ownership
- +Can be done with a private loan or mortgage
- −Buyout price must be fair market value (get an appraisal)
- −The buying heir needs financing or cash
- −Family dynamics can complicate price negotiations
Keep it in the family
Emotional choice- +Preserves sentimental connection to the family home
- +Can be a vacation property shared among heirs
- −Co-ownership without clear agreements creates conflict over time
- −Carrying costs continue indefinitely
- −Exit becomes complicated if any heir later wants out
What you need to know about taxes
Most families leave significant money on the table because they do not understand how inherited property is taxed. Here are the four things that matter most.
When you inherit property, your cost basis is stepped up to the fair market value at the date of death. This means if the house was worth $400K when inherited and you sell it for $415K, you only owe capital gains on $15K — not on a lifetime of appreciation.
Estate tax is paid by the estate before assets are distributed. Inheritance tax is paid by the recipient. Most states have neither. As of 2024, only 17 states plus DC have estate or inheritance taxes. Check your state.
If a beneficiary moves into the inherited home and lives there 2 of the next 5 years, they may qualify for the $250K/$500K primary residence exclusion — in addition to the step-up in basis.
If the deceased received Medicaid benefits, the state may have a lien on the property. This is called Medicaid estate recovery and catches families completely off guard. Check for this before any other decisions.
Start with the checklist
Download the free Family Estate Readiness Checklist — 47 things to do, say, find, and decide. Works whether you're planning ahead or starting too late.
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