Selling Inherited Land - How to Sell Inherited Property

Inheriting a property can be a blessing or a burden depending on the property and the circumstances of the inheritance. Owning land isn't appealing to everyone.

Many times, the property will be sold soon after inheritance because the heir doesn’t have a use for the land 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 because of tax implications.

In this article, learn how to get started, what legal steps to take to get title to the property, the process of selling your inherited property, and how to avoid capital gains tax.

I want to sell 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 probate 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.

The executor will handle the probate paperwork, pay off any debts or liens on the property, file any tax returns the estate must pay, and ultimately make sure the estate’s property is transferred to the beneficiaries.

Land inherited without a will

If the property owner passed away without a will, the property will be distributed according to the state intestate laws. The property will still go through the probate processes. However, without a will, the court does not direction as to who should be considered a beneficiary. Instead, state law will be used to decide on the distribution of the property.

Typically, a probate proceeding without a will begins with the appointment of an administrator to oversee the estate of the deceased. The administrator will function as an executor, resolving all legal claims against the estate and paying off any outstanding debts. The administrator is also tasked with locating all of the legal heirs of the deceased, including spouses, children, and parents. The court will decide what assets will be distributed among the legal heirs according to intestate law.

Selling inherited property with multiple owners

If more than one person is named to inherit a piece of property, all the beneficiaries may not agree on what to do with the property. For example, one family member may want to sell their share of a piece of land, while another may want to continue using the property recreationally.

If there is a dispute, it may be possible to force the sale of inherited property. For example, if a majority of siblings decide to sell the property, then the sale can begin through probate court action.

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.

Sell inherited property without capital gains tax

Landowners often wonder how inherited property is taxed. There is a federal estate tax, but this is only triggered for estates valued at $12.92 million in 2023. As of 2023, only six states impose an inheritance tax - Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Even if you do live in one of those states, there may be exemptions available to avoid paying it.

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 'steps up' to fair market value at the time the deceased passed away. So, even if a property was purchased for $25,000 and is now worth $50,000, only a sale above $50,000 would be taxable. That means that if you sold the property at market value right away, you wouldn’t pay taxes on the sale.

But if you wait to sell your inherited land and it appreciates in value you may have to pay taxes. Short-term capital gains are due when you sell property owned for less than one year. Long-term capital gains taxes are due on any profit made after a property owned for at least one year is sold.

However, capital gains tax rates are low to encourage holding investments long-term. In 2023, the tax rate on capital gains is 0%, 15%, or 20% depending on your tax bracket and filing status. If your income is low enough, you may qualify for the 0% rate. On the other hand, the wealthiest taxpayers will pay taxes at the 20% rate, which is still less than what they would pay for other income.

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 for cash

Once you’ve decided to sell the land, there are three main ways to sell your land. The traditional way to sell land is to list it with a realtor.

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 a piece of 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. For the sale of inherited property, 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 want to sell an inherited property 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.