Inheriting a house here in Maryland is good and honorable, especially knowing that a loved one left you something valuable. However, it can be a process marred with pain, and anguish. First, because it means you probably just lost a loved one, and second because it is not a simple handover process but one that comes with probate procedures and unexpected tax liabilities. Again, it is most probable that the decedent’s belongings are still in the house not to mention the possible need to make renovations.
When one is in mourning, this can be an emotional and challenging situation to bear. In most cases, one may opt to sell the inherited property and benefit from the money over keeping it. But you may be wondering how and where to begin. Worry not for here we have a road map to making a successful sale of an inherited house in Maryland.
On inheriting a house or a property in Maryland, the state requires one to follow a legal process referred to as Probate. This is whereby the will of the deceased is proved and honored. During this time, the executor, or rather the person representing the process in Maryland’s Orphans court, will handle the paperwork, any unpaid debts, mortgages, and taxes, and also ensure the property get transferred to the rightful beneficiary as per the will. In the absence of the will, then the court is left to decide on the inheritance distribution. While normally the probate process takes between 7 months to 1 year, family dynamics and the rise of disputes among the heirs can prolong it to several months or even years.
Can one forgo the probate process?
The probate process is a requirement for most estates but can be exceptional in some cases. In Maryland, it is illegal to transfer the property and assets of the deceased without the Orphans court allowing it. However, it is good to note that this is not a requirement for those who have in place, a properly formed Trust or have set for their investments, Payable on Death procedures. If you are inheriting a house under a trust, you can sell your inherited house here in Maryland immediately, since the oversight of an Orphan court is not needed.
Back to the probate process, here is how to go about it:
1. Get started.
To do this, you should first locate the original will and file it with the office of the Register of Wills or the Orphans Court in the county where the deceased lived, before his/her death. It should be done by the personal representative as soon as possible, even if the family is not yet ready to open the estate. Once approved, the representative receives letters of administration, hence responsible for submitting the required information and paperwork to the court.
2. Determine estate type.
In Maryland, an estate is either small or regular, depending on its worth.
Small estate: has a value of $50,000 or less (or $100,000 if the spouse is the only heir.)
Regular estate: This is an asset whose value is above $50,000 or (above $100,000 where the spouse happens to be the only heir.)
A petition is then filed with regards to the estate type, accompanied by the original will, any amendments, the original death certificate, and a list of interested people (the decedent’s heirs). It should be done within 20 days.
After this, the personal representative should publish a 3 weeks’ notice in a local newspaper to alert the creditors of the death of the decedent and the probate. This allows the creditors to file any claims within six months.
3. File an inventory report.
Within three months of appointment, the personal representative is supposed to file a comprehensive inventory report of the decedent’s estate with its value as of the date of death and the most recent account statement. With the starting estate value determined, the first account should be filed before the elapse of 9 months.
4. Settling of outstanding debts and taxes.
The personal representative should determine the decedent’s outstanding debts and pay them off as well as file every applicable tax return.
5. Asset distribution.
With all this said and done, it is finally time for the personal representative to hand over to you your inherited house. The probate remains open for 6 months, after which the personal representative visits the court to close the case.
Understanding Maryland’s taxes on inherited property.
Before selling your inherited house in Maryland, there are three death taxes you need to be aware of which may or may not apply to your situation.
State (federal) Estate tax and Maryland estate tax.
Most states in the United States do not impose federal estate tax on top of the state estate tax whose threshold is $11.7 million. Unfortunately, this is not the case with Maryland, which has its local federal estate tax of 16% on a property valuing above $5 million.
This means that your inherited property can be subject to both Federal and Maryland estate taxes if it’s worth more than $11.7million. Note that only the amount above the given threshold gets taxed.
In Maryland, an heir is to pay a 10% tax on the value of the inherited house. However, the good news is that most heirs are exempted from the inheritance tax. Among them are immediate family members such as the spouse, children (biological, legally adopted, stepchildren, and former step-children), parents and step-parents, grandparents, siblings, and a child’s or grandchild’s spouse. The exemption also applies to Charity organizations.
Capital gains tax
Capital gains are only applicable once you sell your inherited house in Maryland. The taxable amount is the difference between the selling price and the house value as of the time of the owner’s death.
One can reduce the capital gains tax applicable to them if one lives primarily in the inherited house for at least two years before selling it. This tax exclusion is known as the section 121 exclusion.
For instance, if you and your spouse file taxes together, you are eligible for capital gains tax exclusion of up to $500,000. For a single person or if filed separately, a $250,000 exclusion is applicable.
Important pre-sale tips
While the information above is crucial, it might be quite a mouthful, when one is still in mourning. But worry not for the complex part is done and the house is already under your name. Now let’s look at a few preparation tips to help you with the sale.
After the probate process, all you probably want is to sell the house and move on. However, delving into a property sale without a plan can be stressful since several things tend to come up along the way. For example, you need to consider what happens if the house doesn’t sell within the expected timeline. Do you have a fallback plan?
Understand the market.
If you plan to sell your inherited house in Maryland by yourself, do you know the sale process? Who are the possible buyers? Is it a good season to sell? After all, you want to get the best value for your house.
Have all in agreement
If you are not the only heir of the house, you first need to have a consensus with everyone before deciding to sell. Again the executor also needs to agree with the sale.
Ways to sell.
With all these in place, the last thing you need to do is to decide on how you want to sell your inherited house in Maryland. Below are the possible ways:
1. Sell with a realtor
Engaging an agent is a good option if you decide to have your house sold on the market. The real estate agent will be responsible for marketing and showing the house, as well as negotiating a sale on your behalf.
Using a realtor is likely to fetch the best price for you, but only if you get a competent agent with experience, understands your area, has good marketing strategies, communicates well, and is willing to walk the whole journey with you.
To get a professional real estate agent, you need to make a few consultations and use an agent match tool. This will assist you to rate agents and get their reviews on sales and customer satisfaction.
What are the pros and cons of selling with an agent?
a) Conversant with the market. The experience and knowledge of the market enable a realtor to do a proper house valuation and set the asking price for your inherited house without underpricing or overpricing it.
b) Saves you time. Handling the paperwork, meeting every potential client, showing them around, and closing a deal can be a tedious process, which a realtor will lift off your shoulders.
c) Exposure to customers. Due to their large client base and availability of professional tools, it is easy for an agent to get a potential buyer faster.
d) After-sale issues. Incase anything arises when closing the deal or after selling the house, the agent’s firm is supposed to offer necessary advice to their client and even address the issue. A professional realtor is bound by the law to work in the best interest of their client.
a) Commission payment. The biggest issue working with a real estate agent is that you will have to pay a commission of about 6% once the deal is closed.
b) Incompetent agents. Unfortunately, there are many unprofessional agents out there whose intention is to defraud unsuspecting clients. That is why it is very important to work with a well-vetted, registered agent.
c) Take long to complete a sale. Due to the many parties involved, the process between listing and closing a sale can be quite slow.
d) Many agents refuse to take up houses with many repairs.
2. Selling by yourself.
For some reason, you may opt to use the For Sale By Owner (FSBO) method to sell your inherited house. While this may save you on paying the agent commission, it requires time, drive, and proper preparation to accomplish the sale.
Pros of FSBO
a) No commission fee. All proceeds of the sale go to you.
b) Fully in control. The absence of middlemen gives you are at liberty to decide on how to list, market and choose the best offer for your property.
c) Faster sales. Surprisingly, FSBO often closes a sale faster than using an agent.
a) Time-consuming. Selling a house by yourself means that you are to handle the whole process, from listing, setting the asking price, paperwork, marketing, and scheduling appointments, all of which are labor-intensive and time-consuming.
b) Sell for less. Most such sellers lack knowledge in the real estate industry which contribute largely to a lower net sale as compared to using an agent.
c) If the buyer has an agent, you will still have to pay their commission.
3. Sell to a cash buyer
If you want to sell your inherited house faster here in Maryland, you may want to consider a home-buying company or investor. This method may not garner you much, but it will be easier and stress-free. In fact, you can have your money within 14 days or less. All you need to do is search for reputable home buying companies, review their cash offers and settle for the best.
The good thing about using this method, besides a faster sale, is that it saves you time, has no commission, sells as-is, and you can avoid capital gains tax.
Do I sell my inherited house in Maryland as-is or repair it first?
To make this decision, here are some questions to answer.
- How urgently do you want to sell the house?
If you want a quick sale, then selling it in its current condition will be good.
- How much time and resources do you want to spend on it?
To make better returns from the house sale, you may want to spare some time and finances to declutter, clean, as well as conduct small repairs and cosmetic upgrades. Undertaking major repairs may not bring your money back. However, under certain circumstances, selling the house as is might be a better option.
With this guide demystifying many of the questions you might be having, selling your inherited house in Maryland will be much easier, regardless of the selling method you choose.