Selling Parent’s House Before Death In San Francisco Bay Area
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.
Death and Taxes
A parent’s death is one of the most devastating events in a person’s life. It is heartbreaking, not to mention physically and emotionally taxing.
Especially when one has to deal with all the tax implications of an inherited property and a long, drawn-out probate process on top of it. An estate sale is not as straightforward as it seems, after all.
What is Probate?
Probate is the legal process to divide a deceased person’s property among rightful heirs and creditors. It typically lasts from six months to two years. Unless you’re named executor, you can’t act on the property until probate ends.
You can avoid probate with careful planning, and minimizing taxes. In fact, there are two tax-efficient ways: selling the house before or after the death of your parents.
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 San Francisco Bay Area
Inheriting a property isn’t like in the movies. You don’t just get the keys to your inherited house right after your parents pass. There’s more work involved, like paperwork and legal discussions with lawyers.
If the deceased didn’t set up a living trust or sign a death deed, the property usually has to go through probate.
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
There are two ways to avoid probate as mentioned above: living trust (revocable or otherwise); and a death deed.
Living Trust
Owning a living trust is ideal when there are many inheritors. It’s a legal vehicle that names you as the inheritor with your parents as the managers.
As the inheritor, you have the freedom to decide what to do with the property whenever you’re ready. It can either be changed later on or not: one allows changes while your parents are alive, the other doesn’t.
A living trust just skips the probate process. It doesn’t help with taxes, so you still have to pay all the taxes when selling your parents’ home.
Death Deed
A death deed is also known as a beneficiary deed. It is a legal document that transfers ownership of a property directly to you, as the heir, without the hassle and expense associated with probate. It is not available in every state though, and only avoids probate, not the associated taxes, such as capital gains tax.
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
Inheritance tax varies from state to state. Some states don’t even have an inheritance tax. Check with the local authorities in your state to verify whether you owe inheritance tax on your parent’s house.
2. Selling Parent’s House Before Death In San Francisco Bay Area
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:
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 San Francisco Bay Area
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)
If you want to get top dollar for your parent’s home, then it is best to fix whatever issues the property may have before you sell. In the real estate world, selling property that is ready for occupancy will attract the widest pool of buyers.
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
What if you lack funds for big repairs but still want to sell the property? You can list your parent’s house for sale as is, either with real estate agents or on your own.
With a realtor, they can suggest simple, inexpensive cosmetic improvements to raise the home’s value somewhat, though you’ll need to cover their fees and other costs.
If you opt for FSBO, you can save on commissions and expenses, but you’ll handle marketing, staging, showing, and negotiating the sale.
Remember, selling inherited real estate without repairs risks the house lingering on the market, possibly leading to accepting a less-than-ideal offer. Another option is available…
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
If the property will go through probate, you must pay for holding fees in addition to property maintenance to prevent unintended consequences (e.g. pipes bursting during winter).
Set Realistic Expectations about the Price
Check out the comps in the area to set the right price for your property. Comps help estimate your home’s value by looking at recent sales nearby. If you’re working with an agent, they can handle this for you.
Final Thoughts:
Selling Parent’s House Before Death In San Francisco Bay Area
Selling your parent’s home before they pass away may feel sensitive, but it’s worth considering for practical reasons. It helps you avoid taxes and saves you from future legal complications.
Selling directly to a cash buyer is even better. You skip the hassle of preparing the property—no cleaning or repairs needed—and spend less on upkeep. A cash buyer streamlines the process, requiring minimal effort on your part.
At We Buy Houses in San Francisco Bay Area, we aim to simplify the selling experience for you. We buy homes in any condition, offering a straightforward solution.
With a vast network of local buyers, we ensure you receive a fair cash offer tailored to your market. Unlike national investors, we prioritize local expertise, resulting in better deals. Plus, you bypass real estate agents and their fees.
Ready to begin? Fill out the form below for a no-obligation cash offer, and let’s close this chapter fast. For any inquiries, call us at (408) 557-7554, and we’ll gladly assist you through the stress-free process.
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Author: Saini
My name is Saini, and I founded the We Buy Houses in San Francisco Bay Area team with years of experience in the real estate industry. I have assisted numerous sellers in selling their homes quickly, “AS-IS”, and for a fair price.
He’s been featured in multiple publications including Yahoo Finance, GoBankingRates, LegalZoom, The Mortgage Report, Apartment Therapy, US News and World Report, and SuperMoney among others.