Back to Blog

So You’ve Inherited Land…What’s Next?

Share this post:

Inheriting real estate can come with benefits and an abundance of decisions to be made, and inheriting land is no different. For some beneficiaries, they know exactly what they want to do with their new inherited land – sell it, hold onto it, build on it or even lease it. For others, it can be difficult to make a decision, especially if there is an emotional connection with the land or when other family members are involved.

Since we’re in the business of land, we’re here to help you sort through the process of deciding how to handle your inherited land. Here are just a few things to keep in mind to help you come to a sound conclusion.

Inheriting Land instead of a House

Tree alone in field

If you’ve inherited land, you may find that you’re facing some different considerations when compared to inheriting property with a home on it.

At the core of the difference is that the lack of a house means that you neither have a dwelling for you to use while enjoying the land, nor do you have an opportunity for easily renting out the property for income. On the other hand, the lack of a home may a blessing because it means there will be less maintenance and upkeep.

You’ll need to undertake these kinds of considerations to help you determine if your new land is going to be an incredible opportunity – financially and otherwise – or a headache. Let us help you evaluate:

What Costs & Taxes are Involved?

When evaluating how this inheritance affects you, and whether to hold onto the inherited land or sell it, it’s important to know what costs may result from your new property.

Many outstanding obligations of an estate often are settled after the death and during the administration of the estate by the executor and the courts. But depending on the value of the estate, the relationship of the beneficiary, how the estate was settled and other factors, some obligations can remain even after the estate is processed. And, there always are other costs (unrelated to the inheritance) that just are a fact of land ownership in general.

Death & Taxes

The complicated stuff first…the tax treatment of inherited land can be tricky and may vary from state to state.  As a beneficiary, consult with an experienced tax attorney and accountant to fully understand the most up-to-date legal and tax implications of your inheritance.

Estate taxes and inheritance taxes sometimes are called “death taxes.” Some beneficiaries are pleased to find that, in their situation, inheriting land did not trigger any death taxes that affect them. This typically is the case in estates that fall below exemption thresholds (now at a $5 million baseline) or when there are enough liquid assets in the estate to pay any estate taxes. Work with an attorney if you find out that there are outstanding unpaid estate taxes for the estate at issue, so you can learn if it impacts you and the property you inherited. Likewise, keep in mind that an inheritance tax is a different death tax that a few states impose on beneficiaries, based on the value of their inherited property.

In addition to death taxes, some beneficiaries wonder: Will I be liable for income taxes when I inherit property? The short answer is that just receiving land as an inheritance usually will not trigger income taxes for you, but you will owe capital gains taxes if you sell the property later at a gain. Significantly, this tax would only be applicable to the difference between the fair market value of the land when the benefactor died and what you sell it for.

Mortgages

When you inherit Uncle Bob’s land you also inherit any remaining liabilities and liens on the property. A borrower’s death does not eliminate an outstanding mortgage on the land. In fact, be aware that in some mortgages the death will cause the entire loan to become due. If you decide that you can’t afford to pay the mortgage – or just don’t want to – you may want to consider selling your inherited property, negotiating with the lender or even allowing it to go into foreclosure.

HOA or Community Fees

If you inherit a lot in a planned community you likely will learn that there are homeowners’ association (HOA) fees related to the property, even though there is no home. You may be liable for prior unpaid HOA fees, and will be responsible for new fees going forward. Failure to pay HOA fees can result in liens on the lot, or even foreclosure in some scenarios.

Real Estate Taxes

The impact of property taxes is another important aspect of inheriting land that often is initially overlooked. First, any unpaid property taxes must be paid. Likewise, as the landowner you are responsible for new real estate taxes going forward. And, in many states the transfer – even though by inheritance – may trigger a reassessment that causes the land’s taxes to be higher for the new owner. Failing to pay property taxes can cause you to lose the property in a tax sale.

Ongoing Maintenance & Insurance

Inheriting land also means you have gained the responsibility of being a landowner, including maintaining the property (even if it’s 300 miles away from you). Whether it’s cutting the grass, securing the property, cleaning up after illegal dumping, preventing trespassers or taking care of a home or other buildings on the land, owning land has its responsibilities. And as a landowner you should carry insurance on the property to protect you from liability and to cover the risk of loss to any homes or other structures.

Should I Hold Onto My Inherited Land?

Holding on to inherited land is a popular decision.  Land received by inheritance is often “family” land that has been passed down and has an emotional attachment for family members. Preserving the old family farmland or that lake property where your grandfather taught you to fish may be a no-brainer, especially if you can afford the associated costs. Even if there is no sentimental attachment to the land, an analysis of the real estate value may show that it’s a worthwhile investment to hold on to – either to cash in on down the road or to pass along to future generations.

Should I Build a Home on My Inherited Land?

If the inherited land is something you see yourself living on, or perhaps visiting as a vacation destination, this may be your golden opportunity to build the home of your dreams. Inheriting land may give you the freedom to build the home you want, with many building professionals and contractors to help you along the way. Building a home can be very time-consuming yet rewarding process, so choosing the right builder is essential in this process.

If you decide to build a home on the property but have more land than you want or need, you may want to consider subdividing your land. Also, when deciding to build a home on your land, you may want go through our tips for buying land to determine what needs to be done and how ready you are for the project.

Should I Sell My Inherited Land?

Selling your inherited land can yield benefits like a cash windfall, or allow you to invest that money in an asset that provides an income stream.  And if you sell soon after the benefactor’s death, there is likely to be little or no taxable capital gain for you, as the property’s value is unlikely to have changed much since the death.  But when it comes down to it, your own circumstances likely will dictate whether you need or want to sell your newly inherited land. Will owning the land be a financial burden or… an improving investment? Is the property located too far away…or is it just far enough away to be a retreat for your family? Does the property require too much upkeep and maintenance…or is it fairly easy to maintain? Do you need the money…or are you able to keep it invested in this property? Do you need to pay estate or inheritance taxes…or is the land free and clear? And so on…

If you wish to consider selling, you should first start by contacting a real estate agent to help evaluate the land and, if desired, sell your land. They can assist you in determining a potential sales price and creating a marketing plan.  You also may need to engage other experts, like surveyors, appraisers, environmental consultants, real estate lawyers and accountants.

Be aware that selling vacant land has its challenges, and usually takes longer than selling a house (where there is a larger market of home buyers who are ready to move in immediately). So be patient. You and your agent should market your land to a targeted audience of lot and land buyers to increase your likelihood of a successful and speedy sale.

Get your ducks in a row. Be prepared to sell your inherited land by confirming that the land’s ownership and title has been properly cleared. This may be an issue if multiple beneficiaries are involved.  Also, make sure your land is ready to be shown and in good condition – first impressions are very important!

 

Inheriting land can be a dream come true or a burden, depending on the situation. Whether the property is family land with history and a sentimental attachment or simply an investment property that has been passed along makes a big difference. Also, the financial implications of a inherited land can vary widely, from a “windfall” of a valuable parcel of land that is free and clear of debt, to a piece of land burdened with a large mortgage and unmanageable taxes. Both emotional and financial considerations will be at play when deciding what to do with inherited land, but knowing the facts about costs and responsibilities, as well as tips for keeping, selling, building and subdividing should help you in making the best decision possible. Best of luck to you!

Discussion

  1. Janet Walker says

    Inherited land in different state, would like to lease out, do not know where to start. can you please advise

    • says

      Hi, Janet. Leasing vacant residential land is not an easy task. If the land is in a prime location, you may wish to consider whether the vacant property has other uses (instead of residential) that are allowed for which someone would be willing to pay rent (for example, can the land be used for paid parking?). We do allow land owners the option to list their property on LotNetwork.com as a “For Lease” property, so that is one way for you to get exposure for your property.

      As an alternative, you may want to consider selling the property instead. I suggest you find a broker in the area (that works with lots and land) that can help you better understand the local market and your options.

  2. Melinda says

    A company called to say my Mother inherited some land from a long lost relative. They said she is one of approx. 50 beneficiaries. The company wants us to sign a mineral lease with them but at one point mentioned that taxes have not been paid on the land for years.
    Considering the large number of beneficiaries, I don’t expect my Mothers portion of the mineral rights to be very much. We don’t want to be on the hook for thousands of dollars (if not tens of thousands)in back taxes if the mineral rights payments are nominal. Any advice on how to proceed?

    • says

      That’s an unusual sounding situation. I’m surprised that your Mother would not have heard that she inherited the land, either from the executor or another relative (especially if there are so many beneficiaries). I suggest you first do some research about the situation, the property, the amount of past due taxes, the inheritance value (if any) and the company that is proposing a mineral lease. If her interest in the property is legitimate and is of significant enough value, then paying some back taxes may not be a problem if the property is able to be sold or leased. Good luck.

  3. Lisa says

    My husband and his brother inherited a lot in a planned community with poa fees in another state. There is no value to the land and no one wants it. Are we obligated to continue paying the poa fees? I don’t think it is fair to have to pay for poa fees on an undeveloped lot, far away, that we did not purchase.

    • says

      I would not say you are “obligated” to pay the POA fees on this inherited land, but the fees will continue to be owed and accrue. So if you don’t pay the fees it is possible (and likely) that the POA will file a lien and/or foreclose on the property to get their past due fees.

  4. says

    I am considering selling 30.2 acres of rural land in Cullman county, AL. ( no buildings)
    Can I consider the tax valuation listed as the true value of the land or should I hire someone to evaluate
    The value of the land? I should mention this land is on a river (small river- not large)

  5. Loisel says

    I have inherited two properties. Property A is 17 acres with two mobile home lots (beautiful acreage) many possibilites. Property B is 4 acres with mobile home (im living in it now) tranquil and again many possibilities. I’ve thought about duplexes, farming, group homes, etc. With fair credit and student loan debt, it’s difficult to get any bank funding. Are there any other types of assistance out there? I am very fortunate yet unfortunately I had t lose two great parents in the process.

  6. chassity thomas says

    Yes I sold my land last year that was inherited from my grandmother. I was wondering if I would have to pay any taxes on it while filing my taxes for 2014.I’m going to take then with me but I don’t want to get screwed over if I don’t have to pay in please any help would be appreciated

    • says

      Selling your inherited land can trigger capital gains taxes. Each situation is different based on the taxpayer, the state, the inherited value vs. sales value, etc., so I suggest you plan to work with an accountant to properly address any tax-related issues.

  7. Annette Wells says

    I inherited 8 acres of land (total 40 acres split between 5 of us)from my uncle who passed away Aug of 2011. We sold the land for $11,000 an acre in 2014. What kind of tax will I have to pay on that for 2014 tax season? I am in Iowa.

    • says

      Hi, Annette. Your situation will be very specific to you and the property, among other things. For your best interests this really is not something that you will want to try to find on the Internet, and you should get assistance from an accountant who can help with these types of transactions. Good luck.

  8. Dawn Branston says

    My parents purchased vacant land in 1960. My sister and I inherited the land at our father’s death in 2000. My sister passed in 2013 and my niece and I now co-own the property. We have it listed for sale. What taxes will we be facing upon the sale of that property? (we have an interested buyer) Property taxes are up to date. the land is in Washington state. I live there…she lives in California. We will divide the proceeds equally.

    • says

      Hi, Dawn. I wish you luck with selling your property, and hope our article was helpful for you. In order to fully understand the financial and tax consequences of a sale, you will need to work with an accountant or other professional who knows the details about your inherited property, including its value at the time it was inherited by you. Also note that you and your niece may very well have different tax consequences, both because of your different home states and the different dates on which each of you inherited your portion of the vacant land.

      If you need help selling your vacant land, be sure to check out this page on LotNetwork.com where we describe a number of useful resources and tools for selling lots and land: https://lotnetwork.com/tips-for-selling-lots-and-land.aspx

  9. Ben Muse says

    Hi Steve,

    In 2014, my brother and I sold an acre of land we inherited from my father. We’ve determined through similar land sales that its pretty much a wash. My question is, as executor for the estate, I received a 1099-S for the entire proceeds, even though it was split 50/50. How do I reconcile that on my tax return (using HR Block Premium software)? I know there has to be a way to do this. Thank you. Ben

  10. Joe says

    Hi,
    We have 3 people who inherited 2 homes about 15 years ago. The executor would not let it sell and he died after 10 years. We have tried to sell it over 2 years and no-one will buy it. The taxes are piling up.

    What do we need to do with this now that no-one wants this and has yearly taxes? Will it go against us personally?

    • says

      A tax sale may occur because of your unpaid taxes, but this generally results in a lien against the property and not personal liability. Laws can vary among different states, so check with a local real estate attorney about your options and consequences.

  11. Mandy Brock says

    I am executrix for my grandfather’s estate. He co-owned land with 5 other individuals, some of whom have also passed away and left their portion to their heirs, and now there are nearly 20 owners involved. I took over the estate in 2014 and have been made aware (via petition from Harris County) that taxes have not been paid since 2010. The recipients of my grandfather’s estate have zero interest in the land or the debt, especially since none of the other owners have been paying their portion of the taxes. What are my/their options? If this goes unpaid and the land is claimed by the county, will individual credits be effected?

    • says

      Hi, Mandy. You’re certainly dealing with a complicated situation. As executrix, it would be a good idea to get a real estate attorney and/or accountant involved that can help work out this issue for the estate. It’s safe to say that getting professional advice on this issue is a reasonable and appropriate expense for you to incur on behalf of the estate. Good luck.

  12. richard says

    I inherited 162 acres in texas and want to sell. the land valued at 1,050.000.00 and now valued at 1,075.00.00. it is free and clear. nothing owed on it. taxes are paid. if I sell it for that and pay my realtor 5%, after everything is said and done, what fees will I incur and what should I realistically expect to walk away with??

    • Tori says

      Hi Richard. I inherited about the same amount of land in Karnes County, Texas. I would like to sell it but I don’t know what steps to take. How did you sell yours or do you have any advice on how to start? Thank you.

  13. 215girl says

    Hello,

    I recently found out that I inherited 10 acres of land with no house in another state however the deed is still in my grandmother and her two siblings names, all are deceased. The land is in a rural part of Virginia and I am in PA. I am not sure where to begin with the process. Do I need to hire a lawyer in PA and VA? Thanks in advance for your help.

  14. Tori says

    Hi Steve,

    I inherited over 100 acres of land in Karnes County, Texas through my mother and grandmother. An oil/mineral resource company had the county court find my brothers and me to award the royalties and settle the ownership. Now, I would like to sell my share but I don’t know what steps to take. I live in Nevada. Do you have any advice on how to start? Thank you.

    • says

      Hi, Tori. I suggest you check with a good local real estate attorney in Karnes County to confirm what type of interest you have in the property and any limitations on your ability to sell it. It can be difficult to sell a divided share in a property to a third party, but of course the other owners (your brothers?) could be the best options for buying your interest from you. You usually can gain more value if you coordinate with the other owners to sell the entire parcel together to someone else. Good luck.

  15. Kayla says

    My husband’s grandparents are deceased and left a little over 6 acres to their six adult children. one of them has died. my husband’s dad is the eldest and is the only one paying taxes on the land. no one goes around to clean it up and it looks pretty abandoned. we go from time to time and would like to clean it up but my husband refuses because he says its not his. he would like it and his dad said that his part is for him but he has to deal with his aunts and uncles. my husband was raised by his grandparents after his parents divorced when he was only 8 years old so this land has so much sentimental value to him. he gets frustrated because he would love it. it is out in the country and it has so much potential. he talked to one of his aunts recently about it, maybe buying it from them but she said one of his uncle’s is going to build on it. my husband is pretty bummed and refuses to give his dad’s and well eventually his part up. one of his aunt’s just passed away about a year ago so that makes 4 if you don’t include his dad. is there anything that can be done to get that land? someone said that in the state of LA, if someone pays the property taxes for three years, the land automatically becomes theirs..is that even true? its about to be three years and my husband’s dad is the only one who pays the land. is there anything that can be done at this point?

  16. kris says

    My brother and I inherited each separate land. My brother started farming it before estate is settled. My lawyer indicated he should pay rent on all land which goes into estate. Once estate settled then rental $ divided. Technically we do not yet own land. MN is the state. Your thoughts?

    • says

      Sounds like this could be a delicate situation, Kris. Technically, until the estate has been settled the executor of the estate is the one who should be making the decisions about the land and other estate assets. Even if you are the executor, I suggest that you talk with your brother first if that could be productive. In my view, situations like this often are more of an issue about what’s right for family stability (especially after the loss of a loved one). The rent idea may be legitimate, but also may not be worth it if it completely wrecks your relationship with your sibling.

  17. Donna M. Marbach says

    My sister, brother & I are inheriting a small plot of undeveloped property in Nevada. None of us live in the state and none of us want the property. It’s value is negligible and we would just like to get rid of it. Can we donate it back to the state of Nevada? And if so, how do we go about it.:

  18. says

    My mom passed leaving me executor do I get to decide how it is sold or will the court auction it off. It is divided between me and 2 brother’s. Can it be left has is till we decide to sell it has long has we pay all bills.

  19. Gary McDaniel says

    After my Dad’s death in 1998 his 37 acre “farm” land was left in 4 equal shares to me and my 3 sibs. I became sole owner by paying each sib 25% of the appraised value. There was no livable house on the property and the cultivated land was long ago converted to timber land. In 2015 I sold the land and received a form 1099-S (from the buyer’s lawyer) stating the selling price. Since I had erected a storage shed on the property I considered my cost basis as the 1998 appraisal value + $2067 (shed.) On IRS form 8949 Part II I checked box (D) Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS then followed with Description, Date acquired, Date sold, Selling price, Cost basis (appraisal value+$2067,) and a loss of $1061, which was then transferred to Schedule D.

    Am I correct in using 1099-S instead of 1099-B in form 8949 (since I do not have a 1099-B?) Can you briefly comment on the above?

  20. Charmajne says

    My brother and I inherited land in the Bahamas. The title was never transferred. I am the only one paying the taxes and HOA fees. I own a home in California. If the taxes are not paid over time can a lien be put on my home? I just cannot afford this burden any longer. Any help will be appreciated.

Join the Discussion

Your email address will not be published. Required fields are marked *