How to Sell Inherited Land in Texas
Inheriting land can be a blessing or a burden depending on the property and the circumstances of the inheritance. Land ownership isn't appealing to everyone.
Many times, land will be sold soon after inheritance because the heir doesn’t have a use for the property or they live too far away. In other cases, the heir doesn’t want to maintain the property or pay property tax every year. The new owner may also want to sell quickly after inheritance to avoid capital gains tax.
In this article, learn how to get started, what legal steps to take to get title to the property, and what options you have for selling the land.
I inherited land, what should I do first?
If you believe you have inherited property, the first goal is to get clear title to the land. Clear title means there are no questions about the property ownership and that the land can be sold.
In the case of inheritance, this means taking the property through the legal process known as probate. Probate involves paying off any debts that remain on the deceased’s estate and distributing their assets to the beneficiaries.
The exact process you’ll follow depends on whether there was a will in place when the property owner passed away.
Land inherited through a will
The process is very straightforward if there was a will in place when the land owner passed away. Typically, the will specifies who will inherit the property and designates an executor to distribute the property to the heir or heirs. An executor (or executrix if it’s a woman) is a person named to carry out the terms of the deceased’s will.
Estates worth less than $75,000
When there is a will, an estate worth less than $75,000 is not required to go through the probate court. Instead, once 30 days have passed since the individual’s death, the heirs would file a small estate affidavit with the court having jurisdiction over the estate. Once approved by the court, the heirs can use the affidavit to acquire property from the estate and then sell it.
Estates worth more than $75,000
Estates worth more than $75,000 will have to go through the probate process. Probate ensures the deceased’s will is executed according to their wishes. During this process, the executor will take care of the debts and liabilities of the estate before any asset can be distributed.
Land inherited without a will
If the property owner passed away without a will, the property will be distributed according to the intestate succession process of Texas. A small estate affidavit can still be filed if the value is less than $75,000.
Normally, an affidavit of heirship will be used if the estate is worth more than $75,000 and consists primarily of real estate. The affidavit of heirship provides a family tree to show who the rightful heirs are and what their relationship is to the deceased.
Once the affidavit of heirship is complete, an attorney or title company can prepare a deed transferring title to the heirs. The affidavit of heirship and the new deed are recorded with the deed records of the county where the property is located. Once those steps are complete the heirs can sell the land.
Prepare the land to sell
Once you’ve obtained clear title to the land, you’ll want to start thinking about preparing the land for sale. Unless you sell to a cash buyer, you’ll probably want to do some maintenance to the property. The maintenance will help to show your land in the best possible light to prospective buyers. This could be anything from mowing or bush hogging, mending fences or a gate, or taking down a run-down building.
If you’ve inherited a ranch or farmland, there may even be crops to harvest, livestock to tend to, or farm equipment to sell-off.
Once the property is cleaned up, you’ll want to take photographs of the land. Unless you’re selling to a neighbor or family member, you’ll need high-quality photos to get buyers interested in your land. Normally, it’s worth having a professional real estate photographer do this. They have specialized equipment to capture aerial drone imagery to showcase your land.
Tax on inherited property in Texas
Landowners often wonder how inherited property is taxed. Fortunately, there is no inheritance tax in Texas. There is a federal estate tax, but this is only triggered for inheritance over $12.06 million as of 2022.
You may also owe federal capital gains tax if you wait to sell the property. A capital gain is when you sell real property for more than its tax basis. When you inherit real estate, the property’s tax basis readjusts to fair market value. That means that if you sold the property right away, you wouldn’t owe capital gains tax.
But if you wait to sell the property you may have to pay more taxes. Capital gains tax is due on any profit made after a property owned for at least 1 year is sold. In 2022, the tax rate on capital gains is 0%, 15%, or 20% depending on your tax bracket and filing status.
For the 2022 tax year, individuals don't have to pay capital gains tax if their total taxable income is $41,675 or less. The rate increases to 15 percent on capital gains for income between $41,676 to $459,750. For people with income above that level, the rate rises to 20 percent.
Internal Revenue Service Publication 544 explains the tax rules for the sale of property including how to calculate a gain or loss. You need to report the sale of vacant land as a capital gain or loss on your tax return.
Sell the inherited land as-is
Once you’ve decided to sell the land, there are three main ways to sell your Texas land. The traditional way to sell land is to list it with a real estate agent.
The real estate agent will try to find a buyer and help you with most of the paperwork. The benefit of working with a real estate agent is they will try to get the best possible price for you. The downside of working with a realtor is that it can take a long time to sell vacant land, and there’s no guarantee you’ll find a buyer. You may also have to invest in cleaning up the land before it’s ready to list for sale.
You could also sell the land by owner. Going this route, you’ll be responsible for all the marketing, dealing with potential buyers, and negotiating contracts. With inherited land, selling FSBO might be complicated because most of the work will fall to one person, while there might be more than one beneficiary from the sale. The benefit is that you can save costly real estate agent sales commissions when selling by owner.
The alternative is to sell to a cash buyer. The inheritance process is already complicated enough and this can save you some steps. You’ll be selling the land as-is so you won’t have to make any preparations. The disadvantage is you'd be selling the property at a discount.
Still, some landowners just want to move on from the inherited property. The convenience of selling hassle-free may be more important than getting the full market price. It's also the fastest way to sell vacant land - the whole process typically takes less than two weeks to sell land. If you like the idea of selling your inherited land quickly, consider requesting a cash offer today.
Please consult your financial advisor, accountant, real estate attorney, or tax specialist. This article is for informational purposes and is not tax or legal advice.