Selling Parent’s House Before Death In California

Selling Parent’s House Before Death In California

Parents typically pass down their property to their kids when they pass away, but is this a smart move?

Some believe it’s as easy as inheriting the keys to their folks’ property, but it’s not that simple.

Benjamin Franklin once said that: “Death and taxes are certain.”

These are unavoidable aspects of life we all have to confront. As we age, we not only deal with our own mortality but also that of our parents. They’re aging, and we need to plan for what’s coming.

Selling Before or After a Parent’s Death: Which is Better?

Let’s walk you through your options and see what each one entails.

1. Selling Parent’s House After Death In California

Selling Your Parent’s House by Going through Probate

The probate process can drag on, causing stress and headaches, especially for grieving family members. If the inherited property needs major repairs, you’re stuck unable to act, letting it deteriorate further.

Once you inherit the house, there’s often a lot of work ahead. Family members may have strong emotional ties to the property, delaying decisions on what to do with it.

Selling your Parent’s House without Probate

Living Trust

Death Deed

Capital Gains Tax when Selling Parent’s House After Death

Delaying the sale of the inherited property until after your parents’ passing lets you benefit from the step-up on a basis. This means the property’s value is adjusted when it’s passed on to you, saving you from paying taxes on the increase in value from when your parents bought it.

For instance, let’s say your parents bought their home forty years ago for $15,000. By the time they pass away, its value has risen to $500,000. When you inherit it, its fair market value becomes $500,000. If you decide to renovate and sell it for $700,000, you’d typically owe around 15% in capital gains tax on the $200,000 profit, amounting to $30,000, but only if you sell within 1-2 years.

However, if you hold onto the property for more than 2 years before selling, you can avoid paying any capital gains tax in this scenario. To understand how this applies to your situation, it’s wise to consult with a real estate attorney or professional familiar with tax implications.

Inheritance Tax: Selling Property After Death

2. Selling Parent’s House Before Death In California

Tax Consequences When Selling Parent’s House Before Death

Sometimes, you may need to sell your parents’ house before they pass away, especially if you have medical bills or elder care expenses to cover. Selling their house before they die can help them dodge taxes.

But it’s best to chat with a tax advisor or estate lawyer for the nitty-gritty details. Here’s the gist of it:

Thanks to the Taxpayer’s Relief Act of 1997, your parents wouldn’t need to pay capital gains taxes on their home sale, assuming they don’t meet any of the following requirements:

• The house is not your parents’ primary residence – it could be their vacation home
• The 2-in-5-year rule – meaning they lived in the property for less than two years in the five years they have owned it prior to selling the property

If your folks are married and filing jointly, they don’t have to pay capital gains tax on the first $500,000 they make from selling their house. If they’re single, they’re exempted up to $250,000.

For instance, if they bought the house fifteen years ago for $150,000 and sold it today for $650,000, they wouldn’t owe any capital gains tax if they filed jointly. If one parent has passed away, the surviving parent can sell the house within two years and still get the $500,000 exemption.

Now that they have the money from selling the house, they can give it to their heirs. The IRS lets you gift up to $16,000 a year without tax issues. If you have a spouse and siblings, it’s easy to share the proceeds since each person gets the yearly exclusion. There are other ways to transfer the money tax-free too, like 529 plans.

Selling your parent’s house before they die is the only way to avoid a lot of tax problems like estate tax and capital gains tax. You will still pay taxes though, such as income taxes, arising from the revenue garnered from the sale.

How to Sell Parent’s House In California

Should you decide to go ahead with selling your parent’s home, regardless of whether you do it before or after they pass away, there are three routes you could take as long as all legal documents are in order:

• Making repairs prior to selling with a real estate agent or selling by yourself (FSBO)
• Selling your parent’s house as-is on the market
• Selling your parent’s house as-is to a cash buyer off-market

Read on as we discuss each of these routes:

Route #1: Repair the property then sell with a real estate agent or sell it yourself (FSBO)

Making Repairs to Parent’s House

Upon inheriting the property, the first step is to schedule an inspection to assess its condition. A professional inspector will thoroughly examine every aspect of the home to identify any issues. Subsequently, you should evaluate your personal motivation and financial situation to determine if you can address the necessary repairs. If not, you can explore alternative options.

If finances are not a constraint, proceed with cleaning and hiring contractors for repairs and renovations. Depending on the property’s condition, this process may take weeks to months.

Once the property is restored or at least functional, you must decide whether to engage real estate agents or pursue the For Sale By Owner (FSBO) route.

Selling Parent’s House with a Real Estate Agent

If you decide to work with a real estate agent, they’ll handle preparing the property for potential buyers to see and will negotiate on your behalf. They’ll also help you set the right price to avoid unrealistic expectations.

Keep in mind that this convenience comes with expenses like agent commissions, staging fees, closing costs, and other charges related to selling a property.

If you want to avoid paying commissions, you can try selling by owner (FSBO). This gives you control over the entire selling process but requires investing your own time and effort. However, because most sellers lack experience, this usually doesn’t result in a higher profit.

Route #2: Sell the property as-is on the real estate market

Route #3: Sell your parent’s house as-is to a real estate investor

Saving time, money, and energy is the main reason you may consider this option. Or maybe you live far away, and dealing with the property you inherited is too much trouble.

Whatever the reason, you can sell your parent’s house quickly by selling to investors or companies that buy houses for cash, letting you move forward with your life fast.

Investors are either flippers or landlords. They look for sellers like heirs who want to sell their inherited property quickly.

Compared to other options, selling for cash can get you more money in the end since it saves a lot of time. But depending on the condition of the house, you may get a lower cash offer.

If the house isn’t fixed up, it’s even more appealing to investors. They usually buy below market value since they plan to renovate before selling or renting it out.

Since they don’t rely on banks, they can close a sale quickly. This takes away the stress of dealing with a tricky property and gives you cash in hand.

Plus, the buyer covers closing costs, so you get every penny from their fair cash offer.

Considerations When Selling Parent’s House Before or After Death

Address Potential Family Conflicts

In the case of multiple heirs, address possible conflicts early on.

No parent wants to see their children fighting over their belongings. That’s why early on, plan ahead (ideally with your parents) on how you and the other heirs would settle the estate.

Decide on the following:

• The one in charge of preparing the house for sale
• How you would split the associated costs in the sale
• How you would split the proceeds from selling the house
• The selling price of the house
• Who would have the say in accepting an offer for the property

In the worst case scenario, if you can’t agree on anything, you may need to hire a professional mediator.

Be Prepared to Spend Money when Selling after Death

Set Realistic Expectations about the Price

Final Thoughts: Selling Parent’s House Before Death In California