Inherited land? It’s one of the most common scenarios we visit with clients. It’s not uncommon to inherit distant, remote, or vacant land from a loved one. In this article, we’ll talk all about handling and selling inherited land in the US.
Key Takeaways:
- Probate process for inherited land
- Interstate probate
- How do you sell inherited land with multiple heirs?
- How do you avoid paying taxes if you inherit land from a loved one?
- Common hurdles and how to avoid them.
I have Inherited Land from a Loved One: What are My Options?
Inheriting land can contribute to your life in a positive way. You have 3 options here. You have the choice to hold onto the land and allow its value to appreciate over time. There can be a tax loss. Or you can sell your vacant land immediately after inheriting it. The third option is to develop the land and generate income from it.
Before you consider any solution, you need to consider state laws, tax payments, consent from other heirs, and your personal situation.
Can I Sell My Inherited Land?
Yes, you can sell your share of inherited land. It’s a common misconception that if your name appears on the will, the title automatically transfers to you. That’s not correct. You have to clear and claim the title via the probate process.
The land will go through the probate process. And only after clearing the process can you receive the title. After the probate, you can sell your land or keep it as your asset.
How Does the Probate Process Work for Inherited Land?
I will explain these concepts in a simple fashion. You have to complete 4 major steps:
- Validating will: A will is just a statement of intent. Verification is necessary if a will exists. If there is no will, state intestacy laws will interfere.
- Tax Payment: Creditors and tax officials will collect any debts owed. Estate tax is paid depending on your state laws.
- Your Title: You receive title to your share of the property. An inheritance can be applicable depending on the state laws.
- Interstate Probate: An additional probate is required if the descendent owned property in a state different from the residence state.
How to Clear Land Title via the Probate Process?
The probate process is always local. Most counties have mentioned their process online. Search for your county probate judge and read about the required documents online. You’ll get a fair idea of the process.
Is there an executor named in the will? If not, the court will appoint someone to oversee the entire transaction. After gathering the necessary documents, the process begins like this:
- File a petition with the county’s probate court. The court will start monitoring the process.
- The executor submits a list of inventory, informs creditors, liquidates assets, pays taxes and debts, and submits a final list of assets for distribution.
- All beneficiaries will be informed via first-class mail requiring a signature. Beneficiaries can contest the decision.
- The land (or any other property) will be appraised to establish a fair market value for taxation and selling purposes.
- All beneficiaries approve an asset distribution plan.
- Following the distribution, the respective owners receive the deeds or titles.
- Record your new deed with the county to complete the title transfer.
Can I Sell My Share of Inherited Land?
The answer is yes, but the reality is not simple. If you have inherited land from other heirs, then you must employ a careful approach. All heirs must agree on the outcome. If other beneficiaries want to keep the land:
They can buy your share and give you cash.
In extreme cases, you can go to the court to force the sale. The court will order the sale of the asset and divide the cash among the heirs.
How to Research the Value of Your Inherited Land?
The executor of the estate is responsible for fair pricing of the inherited land. The value of the land is highly dependent on its location. There is limited data on land pricing. You can reach out to us for a fair cash offer. We will evaluate your land free of charge and will give you a cash offer within a few days. Here are a few pointers to help you price your inherited land.
- Road Access: Distant and remote land is difficult to develop. Accessibility is important. If your vacant land parcel can be accessed, then it already becomes more valuable. You can consider road access and nearby commercial/residential developments. Keep these developments in mind when pricing your loan.
- The condition and features of a land differ from one another. Your inherited property is unique in features. Make a list of all the current and possible features. The condition of the land is important. Ensure your land is free from contamination by obtaining a comprehensive environmental assessment report.
- Land’s investment potential: We already discussed this concept in this article. The land value is hidden, and you have to show the potential to interested clients.
- Recent sold comps: Do you have any data on recently completed land transactions in your area? Was it a similar deal? Can you use that deal to price your land?
- Assessed value: The assessed value on your tax bill can give you a fair idea, but it’s not always accurate. In some parts of the country, the tax assessments are wildly different from the original price.
- Land characteristics: Size, purpose, and topography have a huge impact on the land usability and ultimately the price.
- Zoning regulations: What are the permitted uses of the land? The purpose will define the land value.
How Much Tax Do I Pay on Inherited Land?
Generally speaking, most people don’t pay substantial taxes on inherited property. There are three types of taxes:
- Estate tax
- Inheritance tax
- Capital gains tax
The probate process manages estate taxes. You don’t have to worry about paying estate tax on the inherited land. The probate court will take care of that. The executor will directly pay the estate tax before passing down the land share to you. Keep in mind: the estate tax is paid only if the value of the estate exceeds $13.99 million or $27.98 million for married couples (estate tax limit 2025).
Next comes the inheritance tax. At the time of writing, only 6 states in the US impose an inheritance tax. There is no federal inheritance tax.
What about capital gains tax? This is the most intriguing and complex aspect of taxes on inherited properties. The rules are in your favor though.
Let’s assume that the original purchase of the inherited land in 1974 was for approximately $500,000. Now, after appreciation, the land is worth more than $2.5 million. If the buyer had to sell, he would pay capital gains tax on the increased value of $2 million. That’s not the case if you inherit land. The IRS will now consider $2.5 million as your purchase price. You will only pay capital gains tax if you hold the land and sell it after a few years. Let’s say after 3 years, the value of land is $3 million. If you sell after 3 years, you will pay capital gains tax on the increased value of $500,000.
The base value resets when inheriting land. The stepped-up basis helps you avoid substantial capital gains tax payments.
How to Avoid Paying High Taxes When Selling Inherited Land?
You can only save on capital gains tax if you sell quickly within one year of inheriting land. There won’t be any capital gains tax, and you can take home the amount you get. You can also consider a 1031 exchange, which allows you to invest in a similar property. This topic is beyond the scope of this article. Let us know if you have any questions about tax payments regarding inherited land.
Complications of Owning Inherited Property
Land transactions are unique. Interstate probate, family disputes, tax issues, easements, and zoning regulations can complicate the process. It is beneficial to plan ahead and understand the condition of your land. An environmental report will help you detect land contamination early. Talk to the team at 1-800 Land Offer if you would like to sell your inherited land for cash. Our team of experienced investors possesses the necessary knowledge and resources to assist you in your land transactions. We buy inherited land so you can get the most money without hassle. Our team can guide you about challenging problems, tax matters, and land conditions. Join us for a free consultation to discuss your land’s value and our cash offer.