The Guide To Selling Inherited Property In Colorado
Did you recently inherit a house? Did a loved one pass away and you have questions about taking ownership, or how to sell your inheritance?
This easy to understand guide about selling inherited property will cover everything you need to know including:
- First Steps to Take.
- How Probate Applies to Inherited Real Estate.
- Inheritance Taxes and Capital Gains Taxes.
- Best Options to Sell Your Inheritance
Table of Contents
Key Takeaways For Selling Inherited Property
You can sell inherited property
- If you are the sole heir to the house then you can sell it just as you would any other house. Selling inherited property with multiple owners is more complicated but is still possible.
Is the sale considered income?
- The sale of any asset is income including a house you inherited. However, the IRS treats inherited property differently. Click here to learn more.
Do I have to pay taxes?
- Only if you sell the house for more than the tax basis. The tax basis is the fair market value of the property on the day your benefactor died.
- There is no inheritance tax in Colorado. If you inherited property in a state other than Colorado you can find out if there is inheritance tax here.
An Introduction to Selling Inherited Property
Inheriting a house or property can be both exciting and daunting. If you find yourself in this situation, the first step is to understand what you need to do to legally claim your inheritance and make decisions about the property.
This easy to follow article will walk you through the essential steps, answering common questions, and simplifying the process.
In this article you can learn about:
- How to transfer the property into your name legally.
- We’ll demystify taxes related to selling inherited property, such as capital gains tax, and explain how you can minimize or even avoid these taxes.
- Additionally, we’ll outline the documents you need to sell your inherited property legally.
- Lastly, we’ll guide you through the steps of selling your inherited property, whether you choose to invest time and money in renovations or opt for a quicker sale to specialized home buyers.
The First Thing To Do When Inheriting Property
If you were named as an heir in will and stand to inherit a house or property the first thing to do is to get the property changed into your name.
I’m Heir In A Will and Inherited Property.
What’s the First Step?
You need to get it changed into your name so you can legally make any decisions about what to do with the property. This includes if you want to live in it, keep the asset and rent it out, or sell it.
To get your inheritance transferred into your name it will need to go through probate. Each state has a slightly different process. You can perform it yourself or hire a real estate attorney.
Once probate is complete and the house, or property, is solely in your name you are free to do whatever you want.
To inherit a house in Colorado it must go through probate.
This is how it works.
Probate is a series of steps to make sure a person’s property is given to the correct people. This may be an heir, or it might be the next in line if no will can be found.
Probate in Colorado is overseen by the County Courts. For example, if your house is in Denver County the Denver County courts will oversee the process. If you are in Golden then the Jefferson County Courts will perform the necessary steps.
During probate, the court will check for a will, and if none exists, will follow the laws of the county and state to decide who gets what. If there is no will it is up to you to present evidence as to why you should inherit the property but ultimately, it is the judge from the local court who makes the final decision.
Does my inherited property have to go through probate in Colorado?
Asking if probate in mandatory in Colorado is a great question. For the most part, any asset, must go through probate. In Colorado, all assets, including any type of real estate such as houses, land, or rental properties, must go through probate.
There are a few instances where probate can be avoided. These are few and far between and probably don’t relate to you.
To summarize if you answer yes to the following questions your inheritance will have to go through probate:
- Was the house you stand to inherit was owned by just one person?
- Is it worth more than $75,000?
Can I sell during probate?
You can sell your house during probate but the cash will not go directly to you. Instead, the money from the sale of the inheritance will be given to the estate. It is then up to the court to decide if you can access the cash.
With the court’s permission, some beneficiaries will sell the property during probate and use the cash to pay bills associated with the upkeep of the estate. Selling your inheritance during probate to pay ongoing bills and continue the upkeep of the property can be particularly useful if you don’t have any money.
Many debts, including attorney fees, court fees, an outstanding mortgage, or other liens, will be paid for when the house is sold. If the heir keeps the property, they will need to find the cash to pay the bills from somewhere else.
Can I Sell My Inherited House After Probate is Finished?
Selling your inherited property is relatively straightforward once probate is completed in Colorado.
Once probate is over in Colorado you can sell your inherited house. If you are the sole heir, selling it is just like selling any other house or home, emotions aside.
At this point, your name will be the only one on the title. Because it is just your name on the deed, you can legally do whatever you want. You can sell it, become a landlord, and rent it out, or even live in it.
What if I Inherited the Property With Someone Else - Can I Still Sell?
Sometimes a property is left to more than one person. Maybe the person who died had two children and wanted it to be split 50/50. In this case, it does complicate the sale a little bit for a few reasons.
However, you are legally allowed to sell your portion whenever you want. The complication comes around the question of:
“Who would buy just half of the house I inherited?”
Once you have inherited your half you can sell it whenever, and to whomever, you want. You can even sell it to a complete stranger! Of course, it’s highly unlikely a stranger would buy your half, right? I mean, would you?
The person you would end up selling just a portion to would most likely be another heir or family member.
What if All the Benefactors Can't Agree to Sell?
Generally, you can never force the other person to sell their half of the inherited property. If it truly became a situation you must exit, you can go through a lengthy, and costly, legal process. And let me tell you – it’s not pretty!
Having seen a “partition action” take place I would highly recommend you try the best you can to reason with the hold-outs to sell the property.
For example, Instead of selling to them, maybe they would be open to your buying their part of the inheritance.
Sell Your Inheritance to a Sibling or Family Member
When more than one person is the beneficiary of a property one or both heirs may ask themselves:
Can I sell my inheritance to a family member?
If this is the case you’ll be glad to know that you can sell your inheritance to a family member. In the case of jointly inheriting a property, the co-owner, which is most likely a family member, would be the most likely person to buy it from you. However, you can never force them to buy it.
Capital Gains Tax, Inheritance Tax, Avoiding It and More!
Inheritors often ask if the inherited property is taxed after it is sold. Common questions include:
Does the sale count as income?
Can I avoid paying capital gains tax on my inheritance?
What documents do I need to sell it?
Let’s answer these 3 questions now.
Does the Sale of My Inherited Property Count as Income?
Yes, the sale of your inherited property does count as income. However, the money you make when you sell your inheritance is treated differently than “normal” income. It is considered a gift.
Because of this you will not pay taxes when you take ownership and there are many instances you do not have to pay any tax when you sell your inheritance.
Taxes the IRS applies to sold Real Estate (inherited or not)
The main tax applied to real estate sales is capital gains tax. A capital gain is the profit you make on the sale of the house. Very simply, the profit is calculated by working out the difference between what you bought it for and what you sold it for.
The IRS gives a specific name to the price you bought a house for. They call it the “cost basis”.
“But wait, if I inherited a house I never bought it. So how does the IRS work out the difference between what I paid for it and what I sell it for?”
How much tax will I have to pay when I inherit property in Colorado?
There is no inheritance tax in Colorado. Because of this, you do not have to pay any tax when you inherit a house, home, or any type of real estate.
There is however capital gains tax that must be considered when selling inherited real estate.
Avoid Paying Capital Gains Tax on Your Colorado Inheritance Like This
In the case of selling inherited property, the IRS will change the cost basis (what the house was bought for) to what the house is worth on the day they died.
To say it in a different way: The IRS will adjust the cost basis to current market value. The change the IRS makes to the cost basis is called a step up in basis.
They step up the basis from a number that might be 30 years old (what your parents paid for the house) to the current fair market value.
The stepped-up basis means that if you sell the house the capital gain will be much smaller. In-fact there may be no capital gain and because of this you would NOT PAY ANY CAPITAL GAINS TAX WHEN YOU SELL YOUR INHERITED PROPERTY!
Does this make sense?
If not feel free to email me at [email protected] and I will try and explain it slightly differently.
Other Taxes When Selling Inherited Real Estate
There are still other taxes you would pay such as transfer taxes, property taxes, and the like. These are all relatively small dollar amounts and can be paid by the proceeds of the sale. Using the proceeds of the sale is a great way to avoid paying out of pocket for any expenses and is a prudent thing to do.
Your closing agent, probate attorney, or title company can help you do this very easily. COE can only take place once all of these have been taken care of.
Capital Gains Tax Calculator
Would you like to know exactly how much capital gains tax you have to pay on your inherited house?
If you answer yes then follow this link to a capital gains tax calculator where you can work out how much tax you would pay if you sell your inherited property for an amount above the stepped-up basis amount, AKA a profit.
Documents Needed To Sell Your Inherited Property
First and foremost, the document you need to sell your inherited property is a clean title, also known as a deed, with your name on it. If you have a clean deed with your name on it, everything else will fall into place.
If you need to sell your property in a hurry and have this in hand, you could contact a Denver home buyer, who could buy your house incredibly fast. As a home-buying company, Watson Buys can buy any inherited property in the Centennial State extremely quickly.
Simple Steps to Selling Your Inheritance
At this point let’s assume the probate process is complete and you are the only person on the title.
NB: If you are unsure about this simply ask your probate attorney. Or you could look up the title in the public records search. It would take about 3 minutes.
The next step to take is to decide how to sell your inheritance. You can fix it up and sell it for top dollar, or get rid of it as-is.
To sell for top dollar you will need to work with contractors, picky buyers, and of course shop around for a realtor. You will sell it for top dollar, however, it will cost a lot of time and money.
Alternatively, you could sell your property to a specialized home buyer in your area. Watson Buys is a Denver home buyer and we would love the opportunity to give you a no-obligation cash offer on your inheritance. If you’re thinking about selling your inherited property fill out our online form for an instant quote and find out how much we can pay.
If you’ve inherited a house or property, the first step is to legally transfer it into your name. This process, called probate, ensures that the property goes to the right person. Probate can be done by yourself or with the help of a probate attorney, depending on your preference.
Once probate is completed, and the property is solely in your name, you have the freedom to decide what to do with it. You can sell it, rent it out, or even live in it. Just remember that if you sell the property, you might be subject to some taxes, but you can often avoid paying them if you sell it for the same value it had when the person who left it to you passed away. So, while it might seem complex, inheriting property can provide you with various options for the future.
Questions Frequently Asked About Selling Inherited Property in Colorado
When I sell my inheritance does it count as income?
Any income or money you get is initially thought of as income by the IRS and must be declared. The IRS calls income from the sale of real estate capital gains.
However, the IRS calculates capital gains from inherited property differently, than if you just bought and sold the house for a profit.
Because of this, you may not have to pay any taxes.
How do I avoid paying capital gains tax on an inherited property?
You can avoid any capital gains tax when you sell an inheritance by selling it for the tax basis. The tax basis of your inheritance is the fair market value of the property on the day your benefactor died.
If you sell it for more than the tax basis you will only pay capital gains on the difference between fair market value and the sales price.
Do all beneficiaries have to agree when selling inherited property?
If you want to sell the entire house then all heirs must agree to the sale of the inheritance in Colorado.
If, for any reason, this isn’t possible you can sell your part of the inheritance to anyone you want. You can do this whenever you want and is legal.
When all heirs do not agree on selling, you can force the sale of an inheritance through the state probate courts. To do this you would file a lawsuit of partition. If you are successful with your partition, you can then move forward with the sale.
What's the best way to make money from a house I inherited?
There are several ways to make money from an inherited house. The two most obvious ways to get cash out are:
- Rent it out.
- Sell it
Review of Inherited House We Purchased
“I really was so stressed when selling my house. I was nervous, felt vulnerable, even scared. Watson Buys ran comps and showed me the results. They showed me a video of their process too. This really helped me. As a home buyer, they were so honest, transparent, and trustworthy. They treated me with respect. I am very grateful. Thanks, Watson Buys.”
Neil – Denver, CO.