Inheriting a house can be exciting, but make sure you take these steps to avoid financial or legal trouble in the process
When a loved one passes, you may find yourself with a property that was left to you, or you and other family members. There are many complex emotions that you may be experiencing, including grief, excitement, and a sense of responsibility to handle this inheritance properly.
Make sure to fully consider every option available to you, the legal and tax implications, and the responsibilities of homeownership before you make a final decision on what to do with the property.
Review all your options
Inheriting a home likely means that a loved one has passed away. You may be going through a lot during this time between grieving and figuring out what to do next. It's crucial to base your decisions on a well-rounded view of the situation, not just emotions.
You essentially have three options when someone leaves you a home:
- Move into it
- Sell it
- Find renters
One thing that often complicates matters is that the house may have been left to you and your siblings or other family members, making this a decision that must be mutually agreed upon. Selling the home and splitting the profits could benefit everyone involved, especially after considering funeral expenses and debts the loved may have left behind.
Whatever the situation is, make sure you understand the benefits of each option. Do plenty of research about what similar homes are selling for, and get an appraisal so you know exactly what it's worth. Then, compare that number with the potential profit should you rent out the space. While this could be the more fruitful option in the long run, remember that becoming a landlord can be expensive, time-consuming, and stressful.
The bottom line is that there are options and you don't want to make a rash decision, especially when emotions are already high. It's always a good idea to talk these scenarios through with a professional to help you nail down the pros and cons.
Understand the legal side of things
In Florida, you can inherit a home by deed, will, or trust. A deed is when your loved one reserved a life estate and you owned the home with your family member jointly. This means you won't have to deal with probate court.
However, if you inherited the property via a will, you'll have to go to probate court if you wish to sell it. This can take months. If the estate falls under the small estate threshold, you'll have a simpler probate process called summary probate. The threshold is $75,000, or it applies if the decedent has been dead for over two years.
Inheriting by trust means there's a trust agreement that states you're entitled to the property, or you and others are entitled to it. Trusts are often created so probate can be avoided altogether.
Understand applicable tax laws about inheritance
Another important factor to be aware of when you inherit a home are the tax implications. The Tax Cuts and Jobs Act of 2017 made some important changes to the gift and estate tax laws. Key among these was the increase of the basic exclusion amount to be $11.4 million in 2019. This means that gift and estate taxes would only apply to extremely large gifts made by someone either when they're alive or after their death.
Fortunately, there are no state inheritance or estate taxes in Florida to worry about currently.
Whether or not the property you inherit would be taxable depends on the fair market value of the property on the date of the loved one's death, or the fair market value on an “alternate valuation date” if the estate's executor files an estate tax return and uses the alternate valuation on the return.
If you then sell the property, the only tax you would owe would be on the increase in value after the date of the loved one's death, also known as a step-up in basis. A step-up in basis to fair market value means that you would be relieved of capital gains tax liability on appreciation in value while the deceased was still alive if the property was passed to you at death.
Consider other factors of homeownership
Aside from the above considerations, think through just how much work the home could be and how expensive it will be to maintain. Even if there is no longer a mortgage, you'll have to pay property taxes, insurance, bills, and potentially homeowners' association fees.
In addition, consider the emotional impacts of living in the home after your loved one has passed. Often, people decide to sell because it's too difficult to be in the space you once shared with them and encounter their old belongings.
Once you've gone through these considerations and have discussed options with other loved ones who may be involved, you'll have a much better picture of which path forward is right for you. It's always smart to sit down with an attorney to help you sort through everything.
To speak with a lawyer about these matters, contact the team at PeytonBolin for a free phone consultation.