Wealth transfer is more popular than ever with baby boomers projected to inherit roughly $750 billion over the next decade. Studies show that one in three Americans who get an inheritance find themselves in adverse credit within two years of the event.
Using inheritance to shore up your retirement savings is essential for your future, especially if you are selling an inherited house. Warren MI is one of the best locations to sell your inherited properties thanks to the steady rise of the population every year.
According to the U.S. Census Bureau, the population of Michigan has increased by 19,468 residents in 2018. The Bureau also mentioned that growth is mainly because of the increasing number of net migration since 2010.
Knowing how to navigate the Michigan real estate market will ensure that you get the best deal possible in selling an inherited house. Warren MI is a complex market, and here are some questions you should ponder before deciding to sell your property.
What Happens When I Sell My Inherited House?
Recipients of inherited property will receive a step-up tax basis, which means that they will get the home at fair market value on the date of inheritance.
In other words, you will only be taxed on any gains between the period you inherit the property, and when you sell it.
Usually, the federal government requires you to pay capital gains taxes after the sale based on the profits you earn from the investment. Capital gains taxes are estimated by subtracting the original purchase costs to the sale price.
However, people who have lived in the property for two of the last five years may be excused from capital gains taxes.
Is It Better To Sell or Rent an Inherited House?
Renting your inherited house in Warren, Michigan, can be a great source of passive income. The best thing about passive income is that it isn’t subject to taxes like Social Security tax, Medicare, FICA, or SSI.
You can also use rental income to pay an existing mortgage. However, renting an inherited property can be a tad riskier since owners have to monitor tenants, depreciation, and repairs.
Meanwhile, selling an inherited House Warren MI will relieve you of annual real estate tax reassessment. Keep in mind that the Internal Revenue Service performs annual reassessments to determine the real worth of the property and tax you have to pay.
Do I Have To Report Sale Of Inherited Home?
Inheritors have to report their income taxes when they sell their homes. Also, the executors of the estate are required to file an estate tax return to report the inherited property.
Remember that the sale of inherited property is treated as a capital loss or gain for income tax purposes. In general, owners have to hold their properties for at least a year to qualify for lower and long-term capital gains rates.
Moreover, losses from a personal property cannot be considered as a tax deduction. Therefore, people using inherited homes as their residence cannot deduct a loss on the sale.