How to Sell Inherited Land in Colorado

I inherited land in Colorado, what should I do first?

If you believe you have inherited land in Colorado, the first goal is to get clear title to the land. Clear title means there are no unresolved questions about the land's ownership and that the parcel can be legally sold.

In the case of inheritance, this typically means taking the land through the legal process known as probate in Colorado. Probate involves settling any debts remaining on the deceased's estate (which includes the land) and distributing their assets, like the land parcel, to the designated beneficiaries or heirs.

The exact Colorado probate process you'll follow depends on whether the previous landowner had a valid will in place when they passed away.

Colorado Probate Process for Inherited Land

There are three main paths for probate involving estates in Colorado:

1. Small estates

Small estates (below a certain value threshold and not including real property) can sometimes avoid formal probate using an affidavit. However, this is generally not an option when you've inherited real property like land.

2. Uncontested estates - Informal Colorado probate process

This is often the preferred process when inherited land is involved, provided certain conditions are met. The informal process is allowed in Colorado when there is a valid will, and no heirs are expected to contest it. There also needs to be a qualified personal representative appointed to manage the estate.

The court has minimal involvement in the informal process. It's primarily a matter of filing the required probate forms with the appropriate Colorado probate court. These forms are available on the Colorado Judicial Branch website. Normally, the forms are filed in the Colorado county where the decedent lived when they passed away.

3. Contested estates or questionable wills - Formal Colorado probate process

If an informal process isn't suitable, the formal probate process must be followed in Colorado. This may be required if the will is contested, deemed invalid, or if significant challenges arise, such as complex land title issues or difficulties identifying all legal heirs. The formal process typically takes longer due to increased court supervision and potential hearings.

How long will the Colorado Probate take?

Both formal and informal probate processes in Colorado are required to remain open with the court for at least six months. This allows time for creditors to make claims against the estate. If the will is contested, there are disputes among heirs, or other complications arise (like resolving liens on the land), the process can take much longer. Note that the heirs typically cannot access or sell assets like the land until all estate debts, including mortgages or liens against the land, have been paid or resolved.

Prepare the Inherited Land for Sale in Colorado

Once you've successfully navigated probate and obtained clear title to the inherited land in Colorado, you can prepare it for sale. Unless you plan to sell the land to a cash buyer as-is, some preparation is usually recommended to attract potential buyers and potentially increase the sale price.

For land, preparation might involve tasks like mowing or bush hogging overgrown areas, mending fences or gates, removing trash or debris, or taking down any dilapidated, unsafe structures. The goal is to present the land parcel in its best possible light.

After cleanup, high-quality photographs are crucial for marketing the land. Unless you're selling directly to a neighbor or family member who already knows the parcel, compelling photos are essential. Consider hiring a professional real estate photographer, especially one equipped for aerial drone shots, which are highly effective for showcasing the layout, boundaries, and features of a land parcel.

Inheritance Tax and Capital Gains Tax on Colorado Land Sales

Landowners inheriting property in Colorado often ask about taxes. Fortunately, Colorado does not have a state inheritance tax. There is a federal estate tax, but it only applies to very large estates, currently valued at several million dollars, so most inheritances are not subject to it.

However, you will likely need to consider federal and Colorado capital gains tax when you sell the inherited land. A capital gain occurs when you sell an asset, like land, for more than its "basis." For inherited assets, the basis is typically "stepped up" to the fair market value of the land at the time of the previous owner's death. This is a significant benefit, as it means if you sell the land shortly after inheriting it for approximately its value at the time of death, there may be little or no capital gains tax owed.

If you hold onto the inherited land and its value increases before you sell, you may owe capital gains tax on the appreciation. If you sell the land less than a year after inheriting it (using the date of death as the start), any gain is usually considered a short-term capital gain, taxed at ordinary income rates. If you sell the land one year or more after inheriting it, the gain is typically a long-term capital gain. The taxable amount is the difference between the sale price and the stepped-up basis (the land's value at inheritance). Federal long-term capital gains tax rates are currently 0%, 15%, or 20%, depending on your overall taxable income and filing status. Colorado also has its own state income tax that applies to capital gains.

How to Sell Your Inherited Colorado Land

Once you've decided to sell the inherited land in Colorado, there are three primary approaches:

1. List with a Real Estate Agent: You can hire an agent, ideally one experienced in selling Colorado land. They handle marketing, showings (if applicable for land), negotiations, and paperwork. The benefit is potentially achieving a higher market price. The downside is that selling vacant land through traditional listings can take a long time (months or even years), and there's no guarantee of a sale. You'll also pay commission fees, and you may need to invest in preparing the land first.
2. Sell By Owner (FSBO): You handle all aspects yourself - marketing the land, fielding calls from potential buyers, negotiating the price and terms, and managing the closing process. Selling inherited land FSBO can be complex, especially coordinating among multiple heirs if applicable. The main benefit is saving on agent commissions.
3. Sell to a Cash Land Buyer: This offers an alternative, often faster and simpler route. Companies that buy land for cash typically purchase parcels "as-is," meaning you don't need to do any cleanup or preparation. This can be appealing when dealing with the complexities of an inherited property. The process is usually quick, often closing in weeks. The trade-off is that the cash offer will likely be lower than the full market value you might achieve through an agent over time.

Many heirs find the inheritance process complicated enough and prefer the certainty and speed of a cash sale for the land. The convenience of a hassle-free transaction without repairs or lengthy waiting times can outweigh maximizing the price. If a quick, as-is sale for your inherited Colorado land sounds appealing, consider requesting a no-obligation cash offer. You can explore this option further here for selling land fast in Colorado.

Please consult your financial advisor, accountant, real estate attorney, or tax specialist regarding your specific situation. This article provides general information about selling inherited land in Colorado and is not intended as financial, legal, or tax advice. Tax laws and rates are subject to change.