So you’ve inherited a piece of land. Depending on the situation, this could either be a dream come true or a complete pain in the you-know-what. Some beneficiaries inherit land knowing exactly what they want to do with it. For others, it’s not so simple. There are a lot of decisions to be made, which can be especially difficult if you have an emotional connection to the land or if there are multiple family members – and multiple opinions – involved.
It may not be easy to come to a final conclusion on what to do with inherited property, but this quick guide provides you with information you’ll need to consider during the decision-making process.
Unfortunately, a borrower’s death does not make his mortgage debt magically disappear. In fact, looking into the mortgage terms is one of the first things you should do. In some cases, death can cause the entire loan to become due right away. If you can’t pay up, you may want to consider selling the property.
Did your grandmother own a piece of land in a planned community? Even if there isn’t a physical home on the land you inherit, you might owe homeowner’s association or community fees going forward if you decide to hold onto the land.
Maintenance and Insurance
“Out of sight, out of mind” doesn’t apply when you inherit a piece of land. Even if you live thousands of miles away from your newly acquired property, you’re still responsible for maintaining the land and any structures that happen to be on it. You’ll also want to carry insurance on the property to protect yourself from liability.
In most situations you won’t be liable for income taxes simply for inheriting a piece of land. If you decide to sell the land at a later date, however, you will owe capital gains taxes on the difference in dollar value between the fair market value at the date of the benefactor’s death and the amount you ultimately sell it for.
Real Estate Taxes
Ah, property taxes. They’re supremely important, yet often overlooked. If Uncle Tim happened to leave you with the gift of unpaid property taxes, it’s up to you to come up with the cash. You’ll also be responsible for paying real estate taxes going forward. If you don’t, you could wind up losing the land.
While inheriting a piece of land comes with some big responsibilities, there are often many benefits, too. If the land comes free and clear of debt, you could find yourself in the perfect position to build your dream home or a vacation property you can rent for additional income. On the other hand, if you sell the land soon after the benefactor’s death, you’ll likely be off the hook when it comes to paying tax on capital gains.
Whatever you decide to do with your newly inherited land, it’s best to consult with an experienced tax attorney, an accountant, and a real estate agent to be sure you’re making the best decision for your unique situation.