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What Can Go Wrong When You Inherit a House in Florida

what-can-go-wrong-when-you-inherit-houseIf 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 Florida.

What Can Go Wrong When You Inherit a House in Florida

You May Owe More Taxes than Anticipated

When inheriting a house in Florida, understanding the tax implications is crucial. While estate taxes are not typically a concern for most individuals due to the high exemption threshold, the step-up provision is a significant factor to consider. The step-up provision, which adjusts the property’s value to its current market value upon inheritance, was mostly suspended in 2010. This means that if you inherit a property, its value for tax purposes could be much higher than the original purchase price, potentially resulting in higher capital gains taxes when you decide to sell.

Moreover, the temporary suspension of the step-up provision in 2010 highlights the complexity and potential pitfalls of estate planning. Proper planning is essential to minimize tax liabilities and maximize the benefits of inheriting a property. Consulting with a tax professional or estate planner can provide valuable insights into the best strategies for managing inherited property, ensuring that you make informed decisions that align with your financial goals.

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

In the past, when an elderly parent or relative passed away, it was often the case that the mortgage on their house was fully paid off. This was a relief for the surviving family members, as it meant one less financial burden to manage during an already difficult time. However, in recent years, the landscape has shifted, and it has become increasingly common for elderly individuals to take out reverse mortgages on their homes as a way to supplement their retirement income.

Reverse mortgages allow homeowners aged 62 and older to borrow against the equity in their homes, with the loan typically not needing to be repaid until the borrower moves out of the home or passes away. While this can provide much-needed funds for seniors who are struggling to make ends meet in retirement, it can also create complications for their heirs. In many cases, the loan balance on a reverse mortgage can exceed the value of the home, leaving the heirs with the difficult decision of whether to sell the property to repay the loan or to walk away from the inheritance. This shift in how mortgages are managed in later life underscores the importance of careful financial planning and open communication within families to ensure that everyone is aware of their loved one’s wishes and financial situation.

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 Florida, 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 Florida? 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.

We’re ready to help you reach your real estate goals and will be glad to answer any and all questions. Contact us by phone at (239) 360-3176 or fill out the online form.

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