Inheriting property comes with various perks and a variety of challenges, and inheriting land is no exception. Some beneficiaries, already know what they want to do with their newly acquired land — sell it, keep it, develop it, or even lease it.
For some, making a decision might be challenging, especially if there is an emotional attachment to the land or if other family members are involved.
Because we are in the industry, we are here to assist you in navigating the process of determining how to manage your inherited land. However, if you decide to go the selling route, there are a few things you’ll need to be aware of before you start the process.
Inherited Property vs Inherited Land
The average person is generally unaware of the differences between inheriting property and inheriting land. Unless, of course, they have gone through the process. As a result, many believe that it’s the same thing, but there are some very real differences.
The primary difference boils down to real estate. Is there a house or building on the land, or have you simply inherited the land itself?
When inheriting property, the land usually has a house standing on it that can be lived in or rented out for income. But with land, the non-existence of a house makes the possibility of living on it or renting it out relatively low. Unless you live in an agricultural area and the land doesn’t have any rules that prohibit it from being leased for grazing.
It is also less costly when you inherit a piece of land, as land generally requires less maintenance or upkeep than a house or building. However, even though you may not have the responsibility of an actual building, this doesn’t mean you are absolved of basic requirements such as cutting the grass, ensuring the land is secure and free from illegal dumping, or preventing trespassers from gaining access.
Also, when inheriting property, you may encounter additional headaches, such as a large mortgage that requires repaying or high property taxes.
Inheritance Taxes To Consider
One of the first questions most people ask when they inherit land is, what inheritance tax will I have to pay?
This is quite important as the taxes on an inherited property can be tricky and quite complicated.
Estate taxes are commonly called ‘death taxes’. This may be considered quite macabre, but it is relevant as the taxes incurred relate to the deceased’s estate. In some cases, inheriting a piece of land can result in zero death taxes being paid. This is usually when the estate is valued at less than $5 million or when liquid assets can be sold to pay the estate taxes. However, some states require beneficiaries to pay inheritance taxes based on the value of the property they inherit.
Another tax to consider is capital gains tax. This tax is not paid at the point of inheritance and won’t cause a taxpayer to incur additional income taxes. However, if the beneficiary decides to sell the property or land in the future and makes a profit (gain), they would need to pay capital gains tax.
The tax basis for capital gains taxes on inherited properties is calculated on the difference between the property’s fair market value and the sale price agreed. Fairmarket value is the value of the property at the point the deceased passed away (date of death.) Therefore you are only paying tax on the profit you make from the sale of the property. Once the tax rate has been confirmed, the taxes are then paid to the IRS (Internal Revenue Service.)
In some instances, a sale may result in a loss of profit if sold for less than the market value. This can also be reported and may mean that you don’t pay any capital gains tax.
Depending on your circumstances and whether you require access to the cash a sale would generate, selling land has its pros and cons.
A primary factor that may affect the amount of taxes you pay is how soon after inheriting the property you decide to sell. For example, suppose you decide to sell soon after inheriting the property. In that case, the likelihood of benefiting from any long-term capital is minimal as the property value will not have increased by very much.
Additional factors that may influence the sale of inherited land include:
- Cash flow requirements – do you need the cash now?
- Is there a requirement to pay estate and inheritance taxes?
- Are there outstanding costs or taxes attached to the land?
- Is maintaining the land possible and affordable?
HOA or Community Fees
HOA fees, otherwise known as homeowners association fees, are related to land or ‘lots’ in a planned community.
In other words, there may be no home on the land, but the land is situated in an area where development is planned for the future. These fees are payable to the Homeowners association.
Should you inherit land with HOA fees attached, you may be responsible for any unpaid fees and any fees in the future. Unfortunately, unpaid fees can result in a lien being attached to the property affecting your creditworthiness and possible foreclosure and repossession of the land. A title company or real estate attorney can conduct a property title search to uncover liens for unpaid HOA fees attached to your inherited land.
Are You Ready To Sell Your Land? Get Your Cash Offer.
Keeping Your Inherited Land
Should you decide to keep your inherited land as an investment property, you will have specific responsibilities and obligations that form part of your land-ownership duties. These responsibilities will apply even if the land is vacant and has no properties or tenants residing on it.
These obligations as a landowner ensure you are within the boundaries of the law and that your property remains safe and free from weather damage or vandalism. Different inheritance laws govern each state, so it’s best to familiarize yourself with these early on in the process.
Security is a good starting point when maintaining vacant land. Firstly, inform your insurance provider of the vacant status of your land and apply for unoccupied insurance cover. This type of cover protects you in the event of property damage, vandalism, legal expenses, extreme weather, and even public liability. In addition, dispose of potentially hazardous or combustible materials.
Finally, remaining friendly with neighboring property owners can help prevent intruders or squatters from taking up residence as they can alert you to any suspicious activity. Other ways of protecting your land would be to install CCTV or intruder alarms, but this will depend on the size and location of your property.
Additional maintenance considerations include:
- Grass and hedge cutting.
- Maintenance of trees and removal of any obstructing debris.
- Disposal of any waste caused by illegal dumping.
- Prevention of trespassers that may lead to crime infiltrating the area.
Selling Your Inherited Land
Landowners sell their land for many reasons, including looking for financial gain, avoiding high property taxes, or simply disposing of unwanted land. However, selling land is more challenging than selling property with a house or building attached. This is because most people prefer to purchase property that includes a ready-made home in which to live.
Aside from purchase price, other factors that may affect the land for sale is location, development restrictions, and even the general tidiness of your property. Unfortunately, all of these factors can make selling your inherited land even more complicated, and obtaining a fair cash offer for your land may feel like a distant dream.
However, Land For Cash Money can take the complication and fuss out of selling inherited land. Landowners looking to sell inherited land can do so by following the three easy steps below.
- Complete the online form
Submit your property using the online form. The information you supply is reviewed and compared to county, sales, and similar property type data. Once we have all the information, we can calculate a fair offer price for your property.
- Cash offer
A purchase agreement will be sent to you once we have discussed and agreed on the purchase price. No time-consuming face-to-face meetings are required as we are happy to contact you by phone or email.
On receipt of a signed agreement, the closing process will start with a closing date arranged with you. After that, there’s nothing more to do except receive your funds by check or wire transfer straight into your bank account!
Following these easy steps to selling your inherited land truly is as easy as 1,2,3.
Banish long and frustrating delays as you wait for your inherited land to sell.