When a loved one passes, it is common for them to pass on their real estate in addition to their other assets. In the event that you inherit a piece of land from a loved one, there are some important things to consider. But what if you are given a piece of undeveloped land? What are your options when you inherit a stretch of property with no house, or anything else built on it?
Inheriting Land, But Not a House
When you inherit land that is vacant and underdeveloped, you have a few choices about what you can do with it. You can try to develop it, sell it, donate it, or keep it undeveloped. The biggest issue many people have with inheriting vacant land is that there is very little there in terms of investment. You can’t easily rent it out for additional income, and it will now require maintenance and/or stewardship.
Selling the land can be a way to make some money off of the land, but there are taxes and fees associated with real estate sales, including the capital gains tax. Developing on your inherited property can be a long term investment, but will require start up funds.
Costs and Taxes of Inherited Land
When you are bequeathed a piece of land, there are some costs you will need to take into account. There could be estate tax due on inherited property. Work with your attorney to determine if there are unpaid estate taxes for the land.
If your family member gives you land that subject to a mortgage, you will also inherit the mortgage. The same goes for HOA and other community fees.
Maintenance, including landscaping costs can be an ongoing cost of owning any land. While upkeep costs won’t be as much as with a home, the landscaping fees can be higher.
It is probable that you will need insurance for this new piece of land. Insurance will help protect you from liability issues, as well as damages. You may also be responsible to pay real estate/property tax.
Should You Build a Home Here?
When land is inherited, and you have the available funds to develop on it, building a house can be a worthy investment. Whether you want to use the home for yourself, rent it out, or sell it after it is built, you should speak with a developer, as well as your accountant to find the best option for your situation. If the land is big enough, you may want to consider subdividing the land, in order to make multiple developments.
Should You Sell the Land
If you sell soon after the benefactor’s death, there will probably be little to no taxable capital gain for you, as the property’s value would not have changed that quickly. Before selling, you should consider whether or not the land is worth keeping for your financial situation. Is the windfall of money now worth not investing in the land? Or is the land worth keeping as an investment, or even as a retreat for your family?
Boon or Burden
Inheriting a piece of land can ultimately be a great asset or source of income for you and your family. But it can also become a hassle, and a source of lost money. When you inherit a piece of land, you need to meet with your accountant, as well as your attorney to determine what is the best course of action for land, and your personal estate. When you inherit the land, you should also update your own Will to express your wishes to your beneficiaries regarding this property.
For more than 40 years, our firm has been assisting people like you with long term care and estate planning needs. We bring you the knowledge and resources to protect you and your family. Armstrong & Lamberti, PLLC do not provide tax, legal, or accounting advice by articles. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Call 718.477.7700 or contact us online to schedule a free initial consultation with an estate planning attorney at Armstrong & Lamberti, PLLC. We proudly serve Staten Island, Brooklyn and the other boroughs of New York City.