Inheriting a home in Harford County and surrounding areas of Maryland can be both a wonderful gift and a challenging burden. If you inherited a home, you most likely just lost a loved one. Working your way through the intricacies of probate procedures, federal tax, state tax, and more while dealing with the loss of a loved one is an incredible challenge.
If you are in this situation now, take a deep breath. In this article, we’ve put together a road map that will tell you everything you need to know about inheriting a home in Harford County, Maryland. Make sure to read to the end of the article! It explains how to get through probate.
Inheriting a House in Maryland
Probate Process in Maryland
You just inherited a Maryland property. This most likely means you will go through the probate process.
Step 1 : Starting the process - Decide which probate procedure to use (administrative probate or judicial probate). File the will with the Register of Wills. Decide whether the estate is a small estate or a regular estate. Petition for probate at the Register of Wills or with the correct Orphan’s Court. Obtain letters of administration. Submit appropriate information to the Orphan's Court or Register of Wills.
-If the decedent died intestate or there are disagreements with the will, the probate process will go through a Maryland Orphan’s Court. This is known as a judicial probate.
-An estate is considered small if it’s worth is under $50 thousand ($100 thousand if their spouse is the sole legatee or heir).
-An estate is considered regular if it’s worth more than $50 thousand (($100 thousand if their spouse is the sole legatee or heir).
Step 2 : Assets-Take an inventory of the decedent's assets and supply a notice of appointment. The personal representative may also have to provide an Information Report, First Account, and Subsequent Accounts
-Within 3 months the personal representative must supply the Orphan’s Court or Register of Wills with an inventory of the decedents assets, any required appraisals, and a Maryland Information Report. This timeline starts the day the personal representative is appointed.
-Within Nine Months from the date of appointment, a First Account must be filed. This includes the inventory of assets, all activity of the Orphan’s Court or Register of Wills, receipts, and documentation of transactions.
The personal representative must submit a Maryland Information Report. Small and regular estates must supply a Notice of appointment. This is a posting in a newspaper that is intended to inform creditors of the probate and the decedent’s
Step 3 : Pay Debts and Taxes- Determine the decedent's debts and pay them down. File all applicable tax returns.
These debts can include creditor claims, settlement fees, legal fees, and funeral bills. The taxes can include probate taxes, income taxes, federal estate taxes, and estate taxes.
Step 4 : Distribute Remaining Assets-Distribute any remaining money or assets to beneficiaries. The personal representative will be responsible for distribution.
NOTE: If an asset were jointly owned before a decedent’s death, the asset would automatically go to the other joint owner of the asset. This asset will not go through probate. Here’s an example:
-Joe and Betty have a house together and both of their names are on the deed of the house. Joe passes away, and the house is left to Betty because she owned the house prior to Joe's death. The house does not go through probate.
Taxes in Maryland
There are 5 types of taxes that you may have to worry about after a loved one has passed. Income and probate taxes, estate taxes, inheritance tax, capital gains or loss tax.
If you’re the personal representative for someone’s estate, then you’ll have to file the decedent’s income taxes. This can include income taxes (Maryland and Federal), fiduciary income taxes (Maryland and Federal). You’ll also have to pay probate taxes and possibly inheritance tax. The probate taxes are paid at the beginning of the probate process. This is usually out of pocket and is reimbursed by the estate at a later time.
The personal representative may also have to file estate tax returns. If the estate is worth $3 million or more, a Maryland estate tax return must be filed. If their estate is worth $5.49 million or more, federal estate taxes must be filed.
Here’s an example: Joe passed away and left his house to his daughter Sarah. Joe wrote in his will that he wants Sarah to take care of his estate once he passes away. She is now appointed as the personal representative.
-If Joe’s estate is worth $200,000, Sarah wouldn’t have to pay any estate taxes in Maryland.
-If Joe’s estate is worth $3.5 million, Sarah would have to pay Maryland estate taxes, but not federal.
-If Joe’s estate is worth $10 million, Sarah would have to pay Maryland estate taxes and Federal estate taxes.
Maryland has an inheritance tax, but immediate family members are exempt. There are also other people/organizations that are exempt from the inheritance tax as well. To see a more in-depth list, click here. If the Maryland inheritance tax did apply to you, this would be an example of that situation stated earlier:
-Joe’s estate is found to be worth $3.5 million. Greg being the personal representative files the Maryland estate tax. $3 million of the estate isn’t taxed, but the $500,000 is taxed. Greg receives the $3 million, and the after taxes amount of the $500,000.
The last type of tax that you may have to worry about is capital gains or loss tax. This is a tax that occurs if you sell an inherited property, without living in it for at least 2 of the last 5 years. If you have lived in the property for more than two years in the past 5 years, you can be exempt from the tax up to a certain amount. If you are single, the amount is $250,000. If you are married, the amount is $500,000.
The amount taxed is the difference between the houses value and the sold amount. The amount taxed is NOT the price the decedent paid for the house minus the sell price. This is called the stepped-up basis. Here are two examples:
-Joe purchased his house back in 1987. He paid $100,000 for it and made $15,000 of repairs. This means that his tax basis before he died was $115,000. Sarah inherits Joe’s house. She has the home appraised and it’s found to be worth $600,000. Sarah then sells the house 2 months later for $605,000. Due to the “stepped-up basis,” Sarah only pays capital gains tax on the $5,000 ($605,000 -$600,000). If the “stepped-up basis” didn’t exist Sarah would have to capital gains taxes on $490,000 ($605,000-$115,000). -Sarah inherits the same house from Joe and sells it for $585,000. She now has a capital loss of $15,000. If a capital loss occurs, up to $3,000 of the loss can be deducted from her income taxes or $1,500 if she is married and filing separately.
Here’s a Capital Gains Calculator to make things a little easier for you.
The No-Hassle Way to Deal with an Inherited House
If you just read this article, I know what you’re thinking. “I just lost someone and now I have to deal with all of this…” During this time, you shouldn’t have to worry about probate, filing fiduciary income taxes, letters of administration, and everything else that comes with inheriting a house. If you’re like most people that inherit a house from a deceased loved one, dealing with their belongings is the last thing you want to do.
But guess what? There’s a way to get immediate help with your situation and it comes with free experienced probate attorneys. Are you looking to sell your inherited house? If you are, do it the hassle free-way. Easy Outs Homes can give you a fair cash offer quickly for your inherited house. At Easy Outs Homes, we believe you already have enough to worry about after losing a loved one. That’s why we can help you sell your inherited house quickly, so request your offer today!
Important Terms to Know
Administrative probate (M.D.): an administration in M.D. for uncontested wills, which is handled by the county register of wills.
Assets: All property other than income that is part of an estate.
Beneficiary/Legatee: a person or entity entitled to receive a portion of the estate that has been written into a will.
Capital Gains Tax: a tax levied on profit from the sale of property or of an investment.
Capital Loss Tax: the negative difference between the amount an asset is worth (or the amount you paid for it) and the selling price.
Certificate of qualification: the written document created by the Clerk, under seal, at the time the personal representative qualifies to administer the estate. This is also referred to as "letters testamentary" or "letters of administration."
Commissioner of Accounts: the person appointed by the Court to oversee the reports and activities of personal representatives.
Contested: to challenge or disagree with a position in a judicial proceeding.
Decedent: the deceased person.
Estate: the decedent’s property, including real estate, personal property, and any other assets.
Estate taxes: a tax levied on the entire value of a decedent’s estate. This tax is levied before beneficiaries or heirs receive an inheritance.
Federal income taxes: Income taxes levied by the federal government, not state.
Fiduciary: a person in a position of entrusted with another one's property; a general term used to refer to the personal representative.
Fiduciary income taxes: an income tax return for trusts or estates that is completed by personal representatives.
Heir: the persons who would inherit the decedent’s estate if the decedent died intestate (without a will).
Income taxes: taxes that are levied on income. This can include federal and state level income taxes.
Information Report (M.D.): trusts, jointly held property, retirement and P.O.D. accounts, gifts made within two years of death, and other non-probate property
Inheritance: the assets given to heirs or beneficiaries after all of a decedent's taxes and fees have been paid; examples include payment to creditors, income taxes, probate taxes, legal fees, funeral expenses, and estate taxes.
Inheritance tax- a tax on all assets inherited by heirs or beneficiaries.
Intestate: when a decedent has passed away and not written a will.
Judicial probate (M.D.): usually for contested wills and is handled by the county Orphan’s Courts
Non-probate Property: Property that passes automatically at death.
Notice of Appointment: written notice informing all creditors, heirs, and beneficiaries of a decedent’s personal representative.
Notice of Probate: the required notice that an estate is undergoing probate, which is given to beneficiaries and heirs.
Personal representative/Executor: the person appointed to oversee and deal with the decedent’s estate.
Petition for Probate: a written, formal request, properly filed with the court to apply for probate.
Probate: the procedure of admitting a will to a court; the process of appointing a personal representative of an estate.
Probate bond: a written promise, recorded in the Clerk’s Office, by the administrator to perform his or her obligations and duties.
Probate Property: All assets owned at death that require some form of legal proceeding before title may be transferred to the proper heirs.
Probate taxes: These are taxes levied at the beginning of the probate process. They differ from estate taxes.
Regular estate (M.D.): an estate worth more than $50 thousand (($100 thousand if their spouse is the sole legatee or heir).
Resident agent- a person or business that can be served with any legal papers inside a certain state. This person is appointed if a personal representative lives out of state and therefore is a substitute if the personal representative cannot be reached.
Small estate (M.D.): an estate is considered small in Maryland if it’s worth is under $50 thousand ($100 thousand if their spouse is the sole legatee or heir).
Testate: when a decedent has passed away and has written a will.