What Can Go Wrong When You Inherit a House In Kentucky?
Let’s look at some of the things that can go wrong when you inherit a house in Kentucky. No one wants to tackle unexpected financial or family or emotional issues.
Could You Be Responsible For More Taxes Than You Expected?
You may need to think about the stepped up capital gains on the inherited property. 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 Kentucky and when you intend to sell it, you need to consider the stepped-up capital gains situation.
You should consult a CPA about the step-up rules on inherited property. 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.
What’s The Size Of The Mortgage On The Inherited Home?
It’s common these days for elderly people to take out a reverse mortgage on their home to supplement insufficient retirement funds. Therefore, the mortgage on the house may not be paid off.
You need to understand how reverse mortgages work. A reverse mortgage cannot be assumed by the heirs. Typically a standard mortgage can be assumed if you live in the house yourself. So…if you plan on renting the house, you may have to refinance so it’ll be in your name.
Your Inherited House May Require Remodeling or Repairs
With respect to what can go wrong when you inherit a house in Kentucky, 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.
Inherited Real Estate Can Create Problems With Relatives And Joint Heirs
You may encounter some problems if you are not the only heir. Many times brothers and sisters inherit a house jointly. But you may want to sell it while your brother may want to rent it and your other brother may want to live in it. Inheriting a home with your siblings can create a ton of complicated issues.
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 relationship consequences are likely to be very unpleasant.
If you inherit a house in Kentucky, then what should you do? The first thing that you should do is consult with a qualified accounting and legal professional. Do not try to make decisions without getting all the legal issues straight first.