Inherited house comes with questions

February 22, 2013

I have inherited a house in the District and am trying to decide if I should sell it.

The house is in the Riggs Park area of Northeast D.C. I know they are building a Wal-Mart in the neighborhood, and Costco is not far from there. Would you have any insight you could share on the projected value of property in that area, or could you direct me to a resource with such information?

Generally speaking, the closer you are to major roads, public transit and modern retail establishments, the greater the value. Access to well-regarded schools will also add value. Property features relative to other homes in the area, such as the number of bedrooms and baths, lot size, square footage and property condition, play critically important roles in arriving at fair market value.

Riggs Park, according to Harry M. Singleton, a realty agent with Keller Williams Capital Properties, “is a fairly stable neighborhood of modest homes. Because of that and its relative location near the Maryland border, its access to the Fort Totten Metro station, rail and bus lines and major arteries such as South Dakota Avenue and Riggs and Sargent roads, I believe [the reader] would not have any problem selling his house, assuming it does not need a lot of work to make it market ready.”

You asked whether the proximity to existing or planned large retail stores such as Costco and Wal-Mart would have an immediate impact on home prices in the area. The stores aren’t within walking distance, Singleton said, so “I do not believe those facilities would affect much the value of the properties in Riggs Park. They are too far away.”

The District, of course, has shifted from a buyer’s market to a seller’s market. Buyers, though, are still looking for well-priced properties in excellent condition. “Updated kitchens and bathrooms certainly get a home sold quicker,” said realty agent Shantee Haynes, who also works at Keller Williams Capital Properties. “However, if a seller simply doesn’t have the funds to do such upgrading, serious consideration must be given to simple and less pricey fixes, such as enhancing curb appeal, applying neutral paint, de-cluttering, washing windows and power washing the exterior of your home.”

Singleton, who also is an attorney, said heirs often make the mistake of neglecting to invest money in their inherited properties. “In many instances, executing a good rehabilitation plan will bring in substantially more dollars,” he said.

You indicate that you are deciding whether to sell. Presumably, the alternative is to hold on to the property and rent it out. In analyzing the situation, you should understand the federal and local income tax implications. If you sell, you will pay federal capital gains taxes on the difference between the amount realized and your tax basis in the property.

The amount realized is your contract price less your sales costs, which include real estate commissions, legal fees, advertising fees and any seller-paid points. The tax basis of property inherited before and after 2010 — but not during 2010 — is its fair market value on the date of the owner’s death. That is called the stepped-up basis, and it is often obtained by having the property appraised shortly after the death of the owner. Michael Berson, a certified public accountant in Bethesda, said that “depending upon the size of the estate, property inherited in 2010 may have limited stepped-up basis.” The basis calculations for property inherited from someone dying in 2010 require complex elections by the personal representative of the estate and are thus best handled in connection with a trusts and estates attorney and/or a CPA. A detailed explanation of how to treat the sale of your inherited home is provided in IRS Publication 523, “Selling Your Home,” available online at www.irs.gov .

If you decide to keep the home and rent it out, you will need to obtain a business license from the District. If the home was built before 1978, you will also need to have the property inspected for lead paint. Before becoming a landlord in the District, you should be aware that tenants have enforceable rights to live in habitable spaces. Tenants also immediately possess non-waivable rights of first refusal to buy the home should you later decide to sell. These tenants’ rights can delay any proposed sale for as much as nine months.

Zillow.com estimates that homes in the Riggs Park area can be rented for $1,920 per month. Of course, that is merely an estimate. Your best resource for market data is a local real estate agent who is also a member of the Metropolitan Regional Information Systems (MRIS). An experienced real estate agent armed with the latest MRIS data will enable you to make an informed decision on whether to sell your inherited home, and at what price.

Harvey S. Jacobs is a real estate lawyer in the Rockville office of Joseph, Greenwald & Laake. He is an active real estate investor, developer, landlord settlement attorney and lender. This column is not legal advice and should not be acted upon without obtaining legal counsel. Jacobs can be reached at harvey@harveyjacobs.com.

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