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 NY.
What Can Go Wrong When You Inherit a House in NY
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 NY and when you intend to sell it, you need to consider the stepped-up capital gains situation.
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
If you’re the heir of an elderly parent or relative who had a reverse mortgage, you need to be aware that you can’t assume the mortgage. In the case of a standard mortgage, you can only assume it if you live in the house yourself. So if you want to rent out the property, you’ll need to refinance it in your own name. Keep this in mind as you plan for the future.
A reverse mortgage is a type of loan that allows elderly people to borrow against the equity in their home. This can be a great way to supplement their retirement income, but it’s important to be aware of the drawbacks. One of these is that the mortgage cannot be assumed by heirs. So if the elderly person who took out the loan dies or moves out of the house, the loan becomes due and must be repaid immediately.
The House May Need Repairs and Upgrades
With respect to what can go wrong when you inherit a house in NY, 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 NY? 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.