Losing a close family member is disheartening. Discovering you’ve inherited something special from them can leave you with muddled emotions
In most cases, you’re left with a home.
Inheriting a house is not an elementary process. You can’t straightway pack up and move in. Selling it right away can’t happen either without going through certain procedures.
If you’re not the sole beneficiary, you must respect the rights of others who have rights to the home as well. If you’ve become heir to a home, there a few things you need to consider before you make any decisions.
In this article, we’ll expound on the options available to you after you inherit a house.
You Can Expect Taxes When Inheriting a House
When a family member of someone close to you leaves you a home, you have options–three basic ones. Those include moving in, selling it, or renting it out.
To relieve themselves of economic pressure, most people decide to move in. If you do, please understand the property may not come without liability.
Settling into a property allows you to grieve the deceased. Keep in mind, you’ll have to do more than physical housekeeping. You have to get paperwork in order.
Moving into a property could result in you paying an increase in property taxes. Depending on the age of the deceased at death, there may have been a break in taxes on the home.
If the departed owner was a senior citizen, they more thane likely received reduced property taxes. Example, Florida allows an extra $50,000 in homestead exemption for low-income seniors. If you don’t meet that qualification, expect to pay more in taxes.
If you’re inexperienced in this area, consult with a tax professional. Most offer help on understanding property tax law.
Most people don’t think to run a check on the title of the property they’ve inherited. They move in and later receive a mortgage note in the mail for the monthly payment.
Dependent upon the laws of the state you inherited the house in, the estate may not settle the mortgage.
Every state has different laws about inheriting a home with a mortgage. In the state of Florida, the house gets foreclosed if the mortgage isn’t satisfied.
Now, if you assume the payments, the mortgage company will take payments from you. They don’t know the owner’s deceased until you report it. The only thing they see is a mortgage account number and a payment.
If you report the death to the mortgage company, you’ll have to follow their policies on dealing with deceased account holders.
Rest assured, you’re protected under the Garn-St Germain Depository Institutions Act of 1982. It prohibits the lender from enacting the due-on-sale provision. They can’t call the loan due and payable when an heir inherits a property due to the death of the borrower.
If you walk away from the property, they will foreclose on it and have your name cleared from the title.
Again, it’s smart to consult with an estate tax attorney right away. They specialize in understanding property title and can assist you in getting the property in your name.
If a person has a judgment filed against them, the entity holding the judgment can file a lien against their home.
A judgment lien happens when a creditor sues for an unpaid debt. The court allows the creditor to take possession of the debtor’s home until they pay the debt. If the person dies, the lien does not go away.
The judgment holder may make an attempt to foreclose on the home to meet the payment. You need to this if you plan to live in the home.
You inherit the lien with the house. That means you must continue making payments to avoid further action.
Selling the Home
When you inherit a home, you can’t give everything to goodwill and sell it right away. As with moving in, you have to do due diligence. That means more tax stuff and other procedures.
If someone leaves you a home in the state of Florida, you will have to go through the probate process. Probate is when the court settles the estate of the deceased. The probate process supervises the collection and valuing of the deceased person’s assets.
If there’s a will, the executor in the will runs the proceedings. Without a will, a court-appointed representative handles the process. This includes liquidating debts of the departed and distributing assets.
In the event of a will, a judge will freeze all assets to determine its validity. This eliminates the chances of fraud if there are more than one heirs to a property.
Property taxes can be tricky if decide to sell an inherited home, more so with many heirs. If you are the sole successor, all tax liability falls on you. If you aren’t, all beneficiaries are responsible for taxes due.
Estate taxes are taxes that become due on an estate after a person dies. These taxes account for everything the departed person owns, including property. The IRS requires an estate tax return for gross estate assets totaling $11,180,000 or more.
- Property Taxes – When a person dies, their heir(s) assumes responsibility for property taxes, sometimes right away. You have to pay them until the house gets sold. On average, counties in Florida collect .97% of a property’s fair market value.
- Capital Gains – If you sell the house, you must pay capital gains on any and all profits. Because capital gains are profits earned from the sale of an asset, they’re taxable income. These taxes get levied at a federal and state level–the state level around 25%
A reverse mortgage works a lot different than a regular mortgage. It affects you regardless if you move in or sell the property.
It’s a type of loan targeted towards seniors 62 years and older. It allows them to convert the equity in their home into cash. It’s called a reverse mortgage is because the lender pays the borrower instead of vice versa.
Low-income seniors, or elders who live on a determined budget, take on this type of mortgage. It helps them cover basic household expenses and health-related costs.
The downside is it’s not free money. The borrower has to pay the loan back if the home gets sold or vacated.
If the borrower dies, the beneficiary becomes responsible for the loan. Banks aren’t that lenient with payback timeframes. Most cases, you’re left with few options to resolve the mortgage:
- Sell the house. If the value of the property is higher than what you owe, you walk away with the difference. If not, you pay what it’s worth if the amount of the loan exceeds property’s equity value.
- Pay off the loan. If the deceased left you a lump sum of cash, use it to own the house outright. You can also try to finance the loan through a new mortgage if you have qualifying credit.
- Hand over the deed. If you can’t handle the financial responsibility of the home, deed the property to the lender. The lender takes ownership of the property. You get out from under any financial obligation.
- Walk away. Before choosing this option, speak with an estate advisor. Walking forces the lender to foreclose of the home. They will auction it off and go after the deceased’s estate for the balance.
If you inherit a home that has a mortgage that you can’t afford, you can short sale it. A short sale is when a borrower sells a home for less than the amount of the mortgage.
Most lenders will overlook the mortgage balance and allow you to sell the home at market value. They’ll even allow it if the mortgage balance is greater than the market value, but some reserve the right to pursue the estate for the unpaid balance.
Even so, this is a fast way for heirs to avoid foreclosure and make a few pennies off the sale if they can.
Sometimes letting go of something that belonged to someone you loved is hard. It feels like letting go of them all over again. This is true for an inherited property.
Some people find it hard to let go, or in cases with many siblings, everyone might not agree to sell. When this happens, you can go the rental option path.
The real estate market fluctuates, making it hard to sell a property right away. Some houses sit on the market for a long time, which can cause them to decrease in value.
If this happens to you, after probate, consider hiring a property management company. They’ll find a renter and handle the day-to-day maintenance of the property. They also collect rental payments.
This way, you and your siblings (if applicable), can divide up the rest of the rental proceeds. You make a small monthly profit and hold on to something you love as well.
Inheriting a house costs, whether you keep it, sell it, or rent it. It’s both a blessing and curse if you’re not equipped to handle the responsibility.
The great part about it is you have options. Weigh them before you make any major decisions.
Get a cash offer for your inherited house today.