When considering selling an inherited property in Colorado, the first things to consider are market value, outstanding mortgages and debts, home transfer status, and tax implications (including capital gains taxes). Once everything is settled, you can choose how you want to sell your home. But that’s only the beginning. Before you can successfully sell your inherited property in Colorado, there’s a lot you need to know. Thankfully, we’ve made it easy in this helpful guide.
Who is Inheriting the Property?
If you are the sole inheritor of the property, it is much easier to sell than if there are multiple people involved, like additional family members. Every inheritor listed will need to sign off to sell the property. It would be best if you also clarified who will oversee the sale and other tasks like dealing with belongings from inside the house.
Choosing an Executor
If your loved one left a valid will and appointed someone responsible for distributing the estate, you do not need to choose an executor. However, if siblings inherit property and the parents do not designate who should manage sales and other transactions, the siblings should meet and designate someone with ultimate ownership.
When multiple people inherit a single property, disagreements often arise when deciding whether to sell the property. These disagreements can often divide a family. To avoid this, hire an attorney or mediator to help resolve family differences.
Initial Steps
The first step is to research the fair market value of your inherited property. You can do this by comparing it to other properties in your location or using online tools. Various factors can directly affect the market value of your inherited property, such as the local real estate market or the home’s condition. These factors also affect how much you end up profiting from the sale. Always check for:
Existing Debts
In addition to outstanding mortgage payments, check for existing debt. Have all property taxes been paid? Is the property used as a lien, or is it a clean title? Are there other unpaid bills? By answering these questions, you’ll know how much income from a potential sale will be needed to cover existing debts. If this is the case, you should hold off on the sale and deal with the debt.
Existing Mortgages
The property you inherit in Colorado will most likely have an outstanding mortgage. You can confirm this with the mortgage lender who approved the loan. Once you figure out how much money you have left, you can estimate how much profit you will earn from selling the house.
Taking Ownership
There are a few steps to take ownership of inherited property. You can only be selling inherited property in the state of Colorado if it is owned by you or “under your name.” There are three ways to legally take ownership of an inherited property in Colorado:
Living Trust
The best way to inherit property is through a living trust. A living trust is a legal arrangement created by a person (the grantor) during their lifetime to protect their assets and direct the distribution of assets after their death. A living trust outlines the assets that the grantor will distribute. The grantor appoints a trustee to control the assets at any given time for the benefit of all listed beneficiaries. A living trust is an important estate planning tool that helps family members and beneficiaries avoid the lengthy, public, complicated, and sometimes costly probate process.
Probate
Probate in Colorado can get complicated. It depends on the complexity of the probate itself and whether heirs, potential heirs, debtors, creditors, and potential creditors can challenge any part of the probate process. The probate process takes a long time and can be expensive, especially if there is no will. During the probate process, the court ensures that any debts owed by your deceased loved one are settled before the property is transferred to your heirs.
Death Deed Transfer
One legal instrument available to Colorado real estate owners is the Transfer on Death (TOD) deed. As the name suggests, a TOD allows a person to designate one or more beneficiaries, like relatives or friends, to take ownership of the property immediately following death. A TOD deed enables prospective owners to bypass the probate process entirely. Additionally, the transfer of title to a new homeowner is not considered a gift, and gift taxes do not apply to the transaction.
State and Federal Taxes
Colorado has no estate tax. It is one of 38 states with no estate tax. The state also has no gift tax. The annual federal gift tax exemption is $15,000 per recipient in 2021 and $16,000 per recipient in 2022.
Even though Colorado has no estate tax, you may still owe federal estate taxes. The tax exemption is $11.7 million in 2021 and $12.06 million in 2022. It is portable for those who are married. Married couples can receive up to $24.12 million in potential protection if there is a mutual death. The maximum federal tax rate is 40 percent if the estate tax exceeds this amount.
You should report your inherited property as taxable income with the IRS if you sell it. The IRS gives instructions on how to report the sale of a property in Colorado and has the appropriate forms you will need to file.
Selling Methods
Once the property is under your ownership, you can sell it. You can accomplish this in a few ways. Here are the three most popular ways to sell an inherited property in Colorado:
Hire a Real Estate Agent
Hiring a licensed real estate agent can get you the best price for your inherited property. A qualified real estate agent will act as your representative. They will set the sale price, list and market your property, negotiate offers, and handle all the paperwork and taxes through closing. Real estate agents know the market well and can keep you from overpricing (or undervaluing) your inherited property or home.
For Sale By Owner
If you want to handle it yourself, consider FSBO – or For Sale By Owner. Many people think this option would be good when selling an inherited property because they would not have to pay any commission and receive a better price than property investors will offer. The downfall of handling the sale yourself is that you must oversee all the marketing, showings, and paperwork, which can be daunting for those not experts in property sales in Colorado.
Find a Property Investor
Real estate investors purchase property all the time. Most will present you with a cash offer for your property in only a few days. They buy houses as-is, so there is no need to do lengthy and expensive repairs. However, the offer price may be lower than the other options listed here. As a positive, very little paperwork is involved when you sell to an investor. This is the most popular option for out-of-state owners who don’t have time to prepare the property for selling an inherited property.
Instant Buyers
Another quick-sale option is using an instant buyer, or iBuyer, program. Typically, instant buyers operate in larger markets. They present cash offers fast – usually within 48 hours. You don’t have to fix or improve the property; expenses will be deducted from the sales income. Sellers enjoy this option because they control the sales timeline and can handle the entire transaction online.
