Sell, Rent or Keep an Inherited House in King County?

By Jack Macdonald
Macdonald Group of Compass

Not every family that inherits a house wants to sell it. Some want to rent it out for the income. Some have a sibling who'd like to move in. Some just aren't ready to let go yet, and that's a real reason too.

I sell houses for a living, so you can weigh my opinion accordingly. But I've watched families make this decision well and badly, and the good ones almost always start with the same few questions. Here they are.

Start with what the house costs to hold

An inherited house isn't free just because there's no mortgage. Before anyone decides, add up what it costs to own it for a year:

• Property taxes, which keep coming due no matter who owns it.
• Insurance. Tell the insurer the owner has passed and ask how they treat a vacant house, because many policies handle it differently.
• Utilities, kept on so the pipes don't freeze and the place doesn't look abandoned.
• Upkeep: gutters, the roof, the yard, the furnace, and the repairs nobody saw coming.

Write the total down and share it with every heir. That one number settles a lot of arguments before they start, because "let's just hang onto it for a while" has a monthly price.

What renting it out really involves

Renting sounds simple until you're the landlord. In Washington, the Residential Landlord Tenant Act sets the rules, and they're detailed. A few examples from the statute:

• The landlord has to keep the home fit to live in, keep the structure in reasonably good repair, and keep the heat, hot water, plumbing and electrical working.
• If you collect a deposit, the rental agreement has to be in writing, and you have to give the tenant a signed checklist describing the condition of the home at move in.
• Washington limits the reasons a landlord can end a tenancy. Selling a single family house is one of them, but it takes at least 90 days of written notice, and the law has rules about following through on the sale.

That last point catches families off guard. If you rent the house now and decide to sell next year, you can't just list it and ask the tenant to leave next month. Talk with an attorney about the lease before you sign one, and think hard about who in the family will take the 9 p.m. call about a leaking water heater.

Many older homes also need work before they're ready for a tenant. A furnace at the end of its life or a roof with a few years left becomes the landlord's problem on day one.

When one heir wants to keep it

This is common. One sibling grew up in that bedroom and can't picture strangers in it. Another lives in Arizona and would rather have the money.

A buyout is often the cleanest answer: the heir who wants the house pays the others their share. That needs a fair value everyone trusts, and usually financing. I can pull what similar homes nearby have sold for, and many families also get a formal appraisal so nobody feels shortchanged.

When co owners can't agree at all, Washington has a partition law that lets a co owner ask a court to divide the property, or order it sold if it can't be divided fairly. That's a last resort, and it's expensive and slow. Your attorney can explain the options long before it gets there. Most families I work with never come close.

Running the numbers on fixing and selling

Sometimes the real question isn't keep or sell. It's sell now or fix it first. On a Federal Way fixer I sold for an estate this year, I gave the executor a frank look at renovation costs against what investors would pay as is. Seeing both columns made the decision clear. It listed at $399,000 and sold for $454,500.

Whatever you're leaning toward, make sure the comparison includes real costs and real time, not hopeful ones.

Questions to bring to your CPA

I'm not a tax advisor, and this is where one earns their fee. Bring these questions to a CPA before you decide:

• The IRS generally sets the basis of inherited property at its fair market value on the date of death. What does that mean for us if we sell now versus in a few years?
• If we rent it out, how is the rental income taxed, and what records should we keep?
• If one heir moves in, does that change anything for that person or for the rest of us?
• Who owns the house right now for tax purposes, the estate or the heirs?

Ask your CPA what value they want documented as of the date of death. If it helps, I can pull nearby sales from around that time, and some CPAs will still want an appraisal.

A simple way to decide

Put three columns on one page: sell, rent and keep. Under each, list the yearly cost, who does the work, the risk if something goes wrong, and what each heir ends up with. Have your attorney and CPA look at the page before anyone commits.

It's not a perfect formula. But a decision made on paper, with every heir looking at the same numbers, holds up much better a year later than one made in a hurry in the driveway after the memorial.

Related guides

• Selling an Inherited Home on the Eastside: Where to Start
• Selling a Probate Home in King County: What Families Should Know
• Clearing Out a Family Home Before You Sell on the Eastside

Sources: Residential Landlord Tenant Act, RCW 59.18.060 on landlord duties, RCW 59.18.260 on deposits and checklists, RCW 59.18.650 on ending a tenancy, RCW 7.52.010 on partition, IRS: Gifts and inheritances. General information only, not legal or tax advice. For the full rundown, see how I help with inherited and estate homes.

Is it a good idea to rent out an inherited house?

It can be, but renting in Washington comes with real duties under the Residential Landlord Tenant Act, plus carrying costs and repairs. Add up the full yearly cost and talk with your attorney and CPA first.

Can I sell an inherited house that has a tenant in it?

Washington limits the reasons a landlord can end a tenancy. Selling a single family house is one allowed reason, with at least 90 days of written notice. An attorney can explain how it applies to your lease.

What if one heir wants to keep the house and the others want to sell?

Many families settle it with a buyout at a fair value. If co owners cannot agree, Washington law allows a court to divide or order the sale of property, but that is a last resort. Your attorney can explain your options.

What is the tax basis of an inherited house?

The IRS generally sets it at fair market value on the date of death. A CPA can tell you how that affects your taxes when the house is sold.

Selling or inheriting a home is also a money decision. For retirement, tax and estate planning on the Eastside, I recommend Gevers Wealth Management in Issaquah.