If you’ve suddenly inherited a house, you may not be prepared for the questions and issues that can arise. And if you make the wrong decisions, you will likely encounter financial, emotional, and family problems before long.
Forewarned is forearmed, they say, so here’s some of what can go wrong when you inherit a house in Cape Coral.
Inheriting a house can seem like a dream come true, but it often comes with its own set of challenges, especially in a place like Cape Coral, Florida. If you’ve recently inherited a property, you might be facing unexpected issues. At Cash Home Buyer Florida, we understand the complexities involved and are here to help you navigate them. Here’s a breakdown of potential pitfalls you should be aware of when dealing with an inherited house.
What Can Go Wrong When You Inherit a House in Cape Coral
You May Owe More Taxes than Anticipated
Most people don’t have to worry about estate tax because of the very high exemption (in the millions), and the estate tax was even temporarily suspended on 2010. But also mostly suspended in 2010 was the step-up provision. So in considering what can go wrong when you inherit a house in Cape Coral and when you intend to sell it, you need to consider the stepped-up capital gains situation.
One of the first surprises that many new property owners encounter is the tax burden. Inheritance taxes, property taxes, and capital gains taxes can add up quickly. Florida doesn’t have a state inheritance tax, but federal estate taxes may apply depending on the estate’s size. Additionally, the property might come with unpaid property taxes that can become your responsibility. It’s crucial to consult with a tax professional to understand your tax obligations and avoid any nasty surprises.
The step-up provides that you pay capital gains taxes only on the gains above the fair market value at the date of the decedent’s death. It has nothing to with the price the decedent paid for the house – unless the step-up falls in one of the years when it was changed. In that case, you may owe a lot more in taxes than you bargained for.
The Mortgage May Be Bigger than You Thought
Generally in the past, when an elderly parent or relative passed, the mortgage on their house was paid off. These days, though, it’s common for elderly people to take out a reverse mortgage on their home to supplement insufficient retirement funds.
If the inherited house has an existing mortgage, it’s important to check the balance and terms. In some cases, the mortgage balance might be higher than the property’s current value, leaving you with an underwater mortgage. Additionally, you might be required to continue mortgage payments or potentially face foreclosure if the payments aren’t maintained. Understanding the mortgage details will help you make informed decisions about whether to keep, sell, or refinance the property.
You need to be aware, then, that a reverse mortgage cannot be assumed by heirs. And in the case of a standard mortgage, you can assume the mortgage only if you live in the house yourself. So if you intend to rent the house, you may have to refinance it in your own name.
The House May Need Repairs and Upgrades
With respect to what can go wrong when you inherit a house in Cape Coral, this one may be the most costly. Most of the time, people inherit a house from a deceased elderly parent or very close relative. Besides not having the physical ability to perform maintenance and upgrades, many elderly people don’t have the money for it either. And if they do, they may simply choose not to because they know they won’t be living in the house very many more years.
If you plan to live in the inherited house, this may not be a huge concern. But if you intend to rent it or sell it, you’ll have to make repairs to make it presentable and upgrades to bring it up to code and meet other legal and insurance requirements. Installing a new HVAC system or re-wiring the house will involve a big chunk of money.
You May Have Problems with Relatives and Joint Heirs
But what if you’re not the only heir? That can be a problem. Suppose you and your siblings inherited the house jointly. If you want to sell it, your brother may want to rent it, and your other brother, to live in it himself. You can see what a powder keg waiting for a spark this is.
In most states, joint heirs of a home are considered tenants in common, and one heir can force a sale if it comes to that. The process, however, is expensive, and the emotional and familial consequences are likely to be highly unpleasant.
So what can go wrong when you inherit a house in Cape Coral? Quite a lot, actually, if you’re not up to speed on tax laws, mortgages, and upgrade issues. It is best to contact a qualified professional to help head off these issue quickly.