What Happens When You Inherit a House With a Sibling?

When you inherit a house with a sibling or siblings, the first thing to do is have a conversation about what to do with it. You have the option of selling the house, renting it out to tenants or moving into it. If you and your siblings cannot agree, one sibling can force a sale by suing for partition.

Selling the House

The maintenance costs and property taxes on a house can be expensive, and one sibling might not be doing as well financially as the others. Sometimes the easiest thing to do with a shared house is to sell it and divide the proceeds. If that's what all of the siblings want to do, compare the prices of recent home sales in your area to determine what price you should ask for and the lowest you would be willing to go in negotiations. You won't have to pay capital gains taxes on the entire selling price. That only applies to any amount above the basis -- the market value of the house when your parents died

Renting the House

If you don't want to sell the house, another option is to make it available for rent. Depending on location, you can rent it out on a long-term basis or seasonally. The latter can be an attractive option if you still want to use the house for family gatherings once or twice a year, because you can rent it out as a vacation property at other times to bring in revenue. Renting the house out also allows you to let the property's value increase for a while before you sell it

This option only is realistic if one of the siblings lives close enough to the house to act as the property manager. Otherwise, you incur the added expense of hiring a property manager to deal with tenants for you.

Using the House

One of you could move into the house, either permanently or as a temporary solution while you're waiting to sell the property. The sibling who moves in can take time sorting through anything your parents left behind rather than rushing through the process. The value of the house could increase over time, and the sibling who lives there could qualify for the capital gains exclusion by living in the house for at least two years. However, if you're living in the house, you still cannot make any changes to the property without the permission of the other owners, even if you're the only one who lives there and the change would increase the value of the house.

When You Can't Agree

If you can't come to an agreement with your siblings, you can arrange a buyout. The sibling who doesn't want to keep the house can sell her share in the property to the others, allowing her to raise some cash while the others continue with their preferred plan.

If a sibling won't agree to a buyout, the others can sue for partition. This option can be expensive and usually results in hard feelings between the siblings, but the court is likely to order a partition by sale eventually. In a partition by sale, the home is sold to a third-party buyer and the proceeds are divided up. If the property can be divided without selling it the court may order a partition in kind instead, in which case each sibling would receive part of the property. However, a petition by sale is more likely.

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