What Expenses are Deductible When Selling Probate Real Estate in Whatcom County?

Jul 29

Navigating a probate real estate sale as Executor or Administrator can feel like stepping into a maze, especially when it comes to understanding the financial side.

One of the big questions you might have is, "What expenses are deductible when selling probate (or inherited) property?"

Remember, these are expenses of the Estate, not YOUR personal expenses if you are the Executor or Administrator.

It’s also crucial to understand that paying these expenses has priority over distributing inheritance to any heirs.

In addition, keep in mind that the estate's tax return is typically due nine months after the decedent's death.

Let’s break down the deductible expenses so you can make the best decisions possible and stay on top of your responsibilities.

1. Legal and Professional Fees

Legal Fees: You might need a lawyer to help you with the probate process or any legal advice related to the sale. The good news is, these legal fees are deductible. (If you need a local attorney recommendation, you can find my list at the link below, along with 8 interview questions.)
https://brandonnelson.com/bellingham-probate/quick-guide-to-probate-attorneys-in-whatcom-county-a-realtors-perspective

Professional Fees: Hiring professionals like appraisers, accountants, or financial advisors is often necessary to get everything in order. Their fees, as long as they're directly related to the sale, can be deducted too.

(Note that recommending the right professionals from within my trusted network is an important part of my work with you as your Realtor.)

2. Improvements and Repairs to help the sale

Repairs: If you elect to make repairs or strategic improvements to the place before putting it on the market – from replacing trim, siding, or decks, to repainting, to swapping out door handles, hinges, and light fixtures or beyond, those costs are all deductible.

Giving you exact recommendations on what to improve and what to leave alone – as well as recommending the professionals to do it, if you personally don’t want to, or can’t, take it on – is a big part of my service to you prior to listing the home.

3. Selling Costs

Real Estate Commissions: The compensation you pay to your Realtor, and that you offer to a Buyer’s Broker as an embedded cost of the sale, often totalling around 5-6% of the sale price, is fully deductible.

Excise Tax: When you sell a property in Whatcom County – or anywhere in Washington State for that matter – you’ll pay excise tax at closing. This is a sliding scale depending on the gross sale price, but is generally in the range of 1.78%. (Your exact rate will be calculated as part of escrow’s settlement statement).

Closing Costs: Title insurance, escrow fees, document recording and other administrative costs tied to the sale are deductible too.

4. Carrying Costs

Property Taxes: Any property taxes you paid up until the sale date are deductible.

Utilities and Maintenance: Keeping the lights on, the lawn mowed, water, sewer, garbage, and the property maintained while it's on the market? These costs are deductible as carrying costs.

Homeowners Insurance: The insurance premiums you pay during the time you hold the property before selling are also deductible.

5. Mortgage Interest

If the inherited property comes with a mortgage that you’ve taken on, if any, including the interest paid on that loan up to the date of sale is deductible.

How to Claim These Deductions

Keeping track of these deductions is crucial, so here are some tips to make sure you’re on top of things:

Keep All Receipts: Hold onto every receipt for repairs, professional services, and any other expenses. A dedicated folder – whether digital or physical – works wonders.
Track Property-related Payments: Use a spreadsheet or an accounting tool to log all your expenses.
Consult a Tax Professional: The tax landscape can be tricky – keeping good records is the absolute best practice. A tax pro can help you navigate it more smoothly, ensuring you get every deduction you’re entitled to.
Consider using an Estate Tracking Software like EstateExec: Using estate settlement software like EstateExec can simplify the process, helping you manage and track these expenses efficiently, ensuring nothing is overlooked.

You can browse this software at this site: https://www.estateexec.com/estate/sample/Docs/Introduction/0

Conclusion

Selling inherited property comes with its fair share of challenges, but knowing what expenses are deductible can make a significant difference.

By keeping detailed records and understanding these deductions, you can reduce your taxable income and make the process a bit smoother.

If you have any questions or need some guidance, I’m here to help. As a probate specialist, my goal is to make this journey as stress-free as possible for you.