How to Sell an Inherited Property in Colorado

I inherited land, what should I do first?

If you believe you have inherited property, the first goal is to get clear title to the land. Clear title means there are no questions about the property ownership and that the land can be sold.

In the case of inheritance, this means taking the property through the legal process known as probate. Probate involves paying off any debts that remain on the deceased’s estate and distributing their assets to the beneficiaries.

The exact process you’ll follow depends on whether there was a will in place when the property owner passed away.

Probate process - understanding Colorado inheritance law

There are three types of probate in Colorado:

1. Small estates

Small estates can avoid probate and collect on the assets with an affidavit, but this is not an option when you've inherited real property.

2. Uncontested estates - informal process

This is the preferred process for real estate. The informal process is allowed when there is a valid will and no heirs are expected to contest the will. There also needs to be a qualified personal representative.

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

3. Contested estates or questionable wills - formal process

If an informal process is not allowed, then the formal process must be followed. The formal process may be required for several reasons such as when the will is contested or invalid. It may also be required when challenges arise in administering the estate such as property title issues or the need to identify heirs. The formal process tends to take longer because of more involvement of the probate court.

How long will it take?

Both formal and informal probates are required to stay open with the court for at least six months. If the will is contested or if other issues arise, the process can take much longer. Note that the heirs will not be able to access the assets until all debts, mortgages, and liens have been paid.

Prepare the land to sell an inherited property

Once you’ve obtained clear title to the land, you’ll want to start thinking about preparing the land for sale. Unless you sell to a cash buyer, you’ll probably want to do some maintenance to the property. The maintenance will help to show your land in the best possible light to prospective buyers. This could be anything from mowing or bush hogging, mending fences or a gate, or taking down a run-down building.

Once the property is cleaned up, you’ll want to take photographs of the land. Unless you’re selling to a neighbor or family member, you’ll need high-quality photos to get buyers interested in your land. Normally, it’s worth having a professional real estate photographer do this. They have specialized equipment to capture aerial drone imagery to showcase your land.

Inheritance tax and capital gains tax in Colorado

Landowners often wonder how inherited property is taxed. Fortunately, there is no inheritance tax in Colorado. There is a federal estate tax, but this is only triggered for inheritance worth several million dollars.

But you have to pay capital gains tax. A capital gain is when you sell real property for more than its tax basis. When you inherit real estate, the property’s tax basis readjusts to fair market value. That means that if you sold the property right away, you would owe little or no capital gains tax.

If you wait to sell the property you may have to pay more taxes. If time passes  and the value increases, you may owe taxes. Short-term capital gains will apply if you sell the property with a gain less than a year after inheriting. Long-term gains will apply if you sell the property after a year or more. The taxable amount would be the difference between the sale price and the value at inheritance. The tax rate on capital gains is 0%, 15%, or 20%, depending on your tax bracket and filing status.

Sell your inherited land as-is

Once you’ve decided to sell the land, there are three main ways to sell your Colorado land. The traditional way to sell land is to list it with a real estate agent.

The real estate agent will try to find a buyer and help you with most of the paperwork. The benefit of working with a real estate agent is they will try to get the best possible price for you. The downside of working with a realtor is that it can take a long time to sell vacant land, and there’s no guarantee you’ll find a buyer. You may also have to invest in cleaning up the land before it’s ready to list for sale.

You could also sell the land by owner. Going this route, you’ll be responsible for all the marketing, dealing with potential buyers, and negotiating contracts. With inherited land, selling FSBO might be complicated because most of the work will fall to one person, while there might be more than one beneficiary from the sale. The benefit is that you can save costly real estate agent sales commissions when selling by owner.

The alternative is to sell to a cash buyer. The inheritance process is already complicated enough and this can save you some steps. You’ll be selling the land as-is so you won’t have to make any preparations. The disadvantage is you'd be selling the property at a discount.

Still, some landowners just want to move on from the inherited property. The convenience of selling hassle-free may be more important than getting the full market price. It's also the fastest way to sell vacant land - the whole process typically takes less than two weeks to sell land. If you like the idea of selling your inherited land quickly, consider requesting a cash offer today.

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Please consult your financial advisor, accountant, real estate attorney, or tax specialist. This article is for informational purposes and is not tax or legal advice.