05 Nov Selling an Inherited House in Pennsylvania
To sell an inherited house in Pennsylvania, you first need the person with legal power to sign. If the house passes through the estate, that’s the personal representative: the executor named in the will, or an administrator if there’s no will or no executor who serves. Along the way you’ll deal with Pennsylvania’s inheritance tax, which can be a lien on the house until it’s paid, the realty transfer tax on the sale, and income tax on any gain. For an inherited house, the gain is measured from its value at the date of death, with different rules for a surviving joint owner.
Here’s how each piece works, and what the sale itself needs.
Who can sell an inherited house?
It depends on how the house passes.
- Through the estate. The Register of Wills in the county where the person last lived appoints the personal representative by issuing “letters”: letters testamentary to an executor named in a will, letters of administration otherwise. A short certificate is the proof the representative shows to sell. Unless the will says otherwise, the representative can sell real estate the will doesn’t specifically leave to someone. If the will specifically leaves the house to someone (“my house to my son”), that person joins in the sale, or the representative needs a court order.
- By right of survivorship. A house owned jointly with a right of survivorship passes to the surviving owner when an owner dies, outside the will. Whether a deed carries that right depends on its wording and, for spouses, on whether they own it as tenants by the entireties, so read the deed.
- Already deeded to the heirs. Once the estate has deeded the house to the heirs, they sell it in their own names, and every owner signs.
An heir living in the house doesn’t take away the personal representative’s power to sell it. But if the heir lived there with the owner’s consent when the owner died, the representative has no right to take possession unless the court directs it. Other situations also bring in the court, such as granting a purchase option, the representative wanting to buy the house personally, or releasing sale proceeds to a representative who had to post bond. An estate attorney can tell you whether yours is one of them.
What is Pennsylvania’s inheritance tax?
A tax on what each person inherits, at a rate that depends on their relationship to the person who died. Pennsylvania’s inheritance tax law sets these rates:
| Who inherits | Rate |
|---|---|
| A surviving spouse | 0% |
| A parent or stepparent, from a child 21 or younger | 0% |
| A child 21 or younger, from a parent or stepparent | 0% |
| Other lineal relatives: parents, grandparents, children, grandchildren and their descendants, and a child’s spouse or surviving spouse | 4.5% |
| Siblings | 12% |
| Other heirs | 15% |
Charities, exempt institutions and government bodies are exempt.
The tax is due at the date of death and becomes delinquent nine months after it. If it’s paid within three months of the death, a 5% discount applies to the amount paid.
Jointly owned houses. A house owned jointly by spouses is exempt. For other owners who held the house with a right of survivorship, the person who died is treated as owning an equal fraction of it, the value divided by the number of owners, and that share is taxed. If the person who died set up the joint ownership within a year of the death and wasn’t paid for the share they gave, the whole house can be taxed, less a $3,000 exclusion per person.
The lien. The inheritance tax, with any interest, is a lien on the house until it’s paid in full, unless an exception in the law applies. For example, the lien ends on a house sold by a personal representative who has posted bond (or a bank or trust company serving as representative), and on a house sold after the tax on everything reported in the estate’s return has been paid and assessed. Talk to the estate’s attorney and your settlement company early about how it will be handled before settlement.
Is there transfer tax on an inherited house?
Not on the deed from the estate to the heirs, if it’s for no or nominal consideration. Pennsylvania excludes that transfer from the realty transfer tax.
The sale to a buyer is taxed like any other sale: 1% to the state plus a local tax that depends on the municipality. In Montgomery County the total is 2%. Buyer and seller are both legally responsible for the tax, and the agreement of sale sets how they split it. On a $400,000 sale with an even split, the seller’s share is $400,000 × 2% ÷ 2 = $4,000.
Do you owe income tax when you sell?
Only on gain, and the gain is measured from the house’s value at the date of death, not from what the person who died paid for it.
Federal tax. The IRS says the basis of inherited property is generally its fair market value at the date of death, or on the alternate valuation date if the personal representative elects to use it. If you owned the house jointly with the person who died, the IRS gives the date-of-death value only to the part included in their estate; between spouses, that’s half. The IRS says a sale of inherited property is generally reported as long-term, no matter how briefly you held it. To claim the full home sale exclusion, you yourself must have owned the house and lived in it as your main home for at least 24 months of the five years before the sale. A partial exclusion can apply if you sell early because of a job change, a health issue or an unforeseeable event, and a surviving spouse has special rules.
Example: if the house was worth $380,000 at the date of death and sells for $400,000, the gain is $400,000 − $380,000 = $20,000, less your selling costs. These figures are only an example, not a prediction for any home.
Pennsylvania tax. Pennsylvania also uses the fair market value at the date of death as the basis, but it doesn’t recognize the federal alternate valuation date. It gives no stepped-up basis to a surviving joint owner with a right of survivorship, or to a surviving spouse who owned the house as tenants by the entireties. If the estate sells, the residence exclusion can’t be taken on the estate’s return. Whether the estate or the heirs report the gain depends on who sells and what the estate distributes.
Ask the estate’s tax preparer how to document the house’s value as of the date of death and how these rules apply to you. For how gain and net proceeds differ, see How to Estimate Your Net Proceeds When You Sell in the Philadelphia Suburbs.
What paperwork does the sale need?
- The seller’s disclosure statement. Pennsylvania’s disclosure law doesn’t apply to a sale by a personal representative in the course of administering the estate. If the heirs sell in their own names after the house is deeded to them, that exemption doesn’t cover them. We explain the form in The Pennsylvania Seller’s Property Disclosure Statement, Explained.
- Lead-based paint. For a house built before 1978, the federal disclosure rules apply to an estate sale. The only sales they exempt are foreclosure sales.
- Municipal resale requirements. These apply to an inherited house too. In Bridgeport, for example, any resale needs a Use and Occupancy Permit.
- Proof of authority. The personal representative’s short certificate, or the recorded deed to the heirs, and the death certificate.
How do you get the house ready to sell?
- Keep it insured and secure, and tell the insurer if it’s empty.
- Keep the utilities on so buyers can see it and inspectors can test the systems.
- Gather the documents: the deed, the will and letters, recent tax bills, and any mortgage statements. A mortgage still on the house is paid off from the sale at settlement.
- Agree on the contents. Decide what heirs keep and what gets cleared before photos.
- Decide on repairs. Selling as is doesn’t stop a buyer from asking to inspect, and the paperwork above still applies.
For every cost of the sale itself, see What It Costs to Sell a House in the Philadelphia Suburbs.
Is there help in Philadelphia?
Philadelphia’s Register of Wills probates wills, issues letters, and acts as an agent for filing and paying inheritance tax. If you live in a Philadelphia house you consider yours but your name isn’t on the deed, the Register of Wills’ Title Clearance Unit helps qualified residents through probate and the title transfer. It gives guidance, not legal advice, and you’ll need to show proof of income to qualify.
Frequently asked questions
Can the house be sold before the estate is settled?
Yes, within the limits above. Once the Register of Wills has issued letters, the personal representative can sell the house as part of administering the estate, unless the will restricts it. If the will specifically leaves the house to someone, that person joins in the sale or a court order is needed.
Do we pay inheritance tax and income tax?
Possibly both. They’re different taxes. Inheritance tax is on what each person inherits. Income tax is on any gain when the house is sold, measured from its value at the date of death; a surviving joint owner has different rules, explained above.
Does the estate have to fill out the seller’s disclosure statement?
Not when the personal representative sells while administering the estate. Heirs who sell after the house is deeded to them don’t get the estate’s exemption, so the disclosure law applies to them unless another exception fits, such as a sale from one co-owner to another, or to a seller’s spouse, parent, child or grandchild. The lead-based paint rules apply to the sale either way.
What if one heir is living in the house?
That alone doesn’t take away the personal representative’s power to sell it, but taking possession may need a court order, and if the will specifically leaves the house to that heir, the heir must join in the sale or the court must order it. If the heirs disagree about selling, talk to the estate’s attorney.
Selling a house you inherited?
It’s a lot to handle while settling an estate. If you’ve inherited a house in Philadelphia or the Philadelphia suburbs, we’ll walk you through the steps, coordinate with your estate attorney, and price the house for sale from recent sales. Any value range we give you is a broker price opinion, and a broker price opinion is not an appraisal. For the estate’s date-of-death value, ask an appraiser. Contact Plus Realtors and tell us about the house.