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Key Takeaways
- An inherited home can cost more than expected, as expenses such as taxes, insurance, and mortgage payments can start right away.
- Without a trust or transfer-on-death deed, heirs may pay bills for months before selling or moving in due to the probate process.
- Receiving a home may not negatively impact your taxes, but there are trade-offs to selling, renting, or keeping the home.
After your parents or grandparents pass away, you may expect to receive some type of inheritance, whether it’s old jewelry, leftover retirement account assets, or even a home.
While inheriting a home can be a blessing, it can also come with hidden downsides. With the “Great Wealth Transfer” underway, this is an issue many Americans could face in the coming years.
During this period, a staggering $124 trillion worth of wealth is expected to transfer through 2048, with most of that wealth going to heirs, according to Cerulli Associates.
Why This Matters
More Americans will inherit homes as trillions of dollars pass to the next generation. Knowing the costs, probate rules, and tax basics can help families avoid financial stress during what is likely an emotional and difficult time.
Many people could find themselves with their parents’ home on their hands in the coming years.
A Freddie Mac survey from late 2024 found that three-quarters of Baby Boomer homeowners planned upon death to leave their home or hand down the proceeds from the sale of their home to family members.
Inheriting a Home Isn’t Always a Windfall
Inheriting a home also means inheriting all the costs of homeownership, including home insurance premiums, property taxes, homeowners’ association (HOA) fees, maintenance costs, and more.
This can be especially challenging if the home goes through probate, a legal process that settles the terms of a will and appoints an executor after a person’s death.
If someone transfers their assets to a trust, those assets can avoid probate. However, if someone has a will or dies without one, their assets may have to go through probate.
Probate can be a lengthy process, too.
While the details of the estate are being finalized, the estate may have to pay the bills incurred on the home, according to Byrke Sestok, a certified financial planner (CFP) and partner at MONECO Advisors.
“If the home is not in a trust or deeded with a transfer on death, then the home must go through probate,” Sestok said in an email. “Homes also have bills attached and the executor of the estate must continue to pay them.”
Be Intentional When Making a Plan
Melissa Caro, certified financial planner (CFP) and founder of My Retirement Network, suggests that people think carefully about what they want to do, understanding the market value, mortgage status, and ongoing costs.
“With a house, someone has to decide whether to move in, rent it, sell it, or hold it,” Caro said in an email. “Each option has tax, maintenance, and emotional consequences, and families are often forced to make those decisions while they’re grieving.”
On the upside, since real estate is subject to what’s known as a step-up in cost basis, the price of the home becomes the value of the property when the individual dies.
That means if your parents purchased a home for $100,000 that appreciated in value to $500,000, you might only be responsible for capital gains tax if you sell the home for more than $500,000.
However, if you’re planning to invest money in the home with the intention of reselling it, you’ll want to set a budget for remodeling or flipping it, suggests Nathan Sebesta, a certified financial planner (CFP) and owner of Access Wealth Strategies.
“You’ll want to have a clear goal and work with someone in the real estate or construction industry,” Sebesta said. “Know how much you plan to invest in the home and how much you expect it to appreciate.”
