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Inheriting a property sounds like a good financial deal that comes your way at first, but there are certain tough decisions that you have to make to get maximum benefit out of inheriting property. Inheriting a property or estate is not a simple process of gaining possession of the estate directly. There are some important points that one should know about the process of inheriting any property.
The ‘Will’ will be Followed
The distribution of inheritance starts with the will of the deceased person. If the deceased has a legal and valid will, then the assets of the deceased person will be distributed accordingly. If no will is in force then the property or assets will be distributed according to the California laws of intestacy
Once you inherit property from the deceased’s will or otherwise (in the form of intestacy distribution), you have to pay some federal, state, and local taxes on the property, and one of the major taxes that you might have to pay is the estate tax. An estate tax is levied on the property and the inheritors have to pay this if value of the property exceeds a certain amount as defined by the law.
As per the most recent IRS regulations, an estate that has a combined gross worth exceeding $5.45 million is required by law to be filed for a federal estate tax. Any estate that is valued less than this amount is free from estate tax.
Options for dealing with an inherited property
Once you are done dealing with the taxes on the inherited property, you will have three options to choose from:
Move into the house
Moving into the inherited home can be a good option if you are currently living as a renter; however, the situation becomes tricky if the inherited house is not located in the same city and state where you live and work. It will also be difficult to move into the inherited property if you are sharing it with your other siblings.
Therefore making the decision of moving into the house has certain caveats that should be looked into before making the move.
Sell the property
If you are not going to move into the inherited house then the best option is to sell it. Selling the property will make the distribution of assets easier. It can also provide you with a huge tax relief in case the value of the property has appreciated after the death of your loved one. The property is taxed according to the market value at the time of the death and hence any increase in the value of the property will be free of capital gain taxes.
Rent it out
Another way to deal with your inherited property is to rent it out. Renting the property can prove to be a financially sound decision because you can generate an extra income stream by renting the property while simultaneously reaping the benefits of land appreciation on the estate.
All these options of dealing with an inherited property have their downsides and benefits, thus it depends on every individual as far as which option is best suited to get the most out of the property.
If you are about to inherit a piece of property in Orange County, you need experienced financial advice to properly manage it. Speak with Griffin Financial and we can give you the guidance you need to avoid unnecessary taxes and protect your investments.