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 TN.
What Can Go Wrong When You Inherit a House in TN
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 TN 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 inheriting a home, the mortgage may be larger than you realize. That’s because many elderly homeowners these days have taken out reverse mortgages. A reverse mortgage is a loan against the value of the home. The borrower doesn’t make any payments on the loan as long as they live in the home. When the borrower dies or moves out, the loan must be paid back.
If you’re inheriting a home with a reverse mortgage, you’ll need to repay the loan in full. If you’re inheriting a home with a standard mortgage, you can assume the mortgage if you live in the house yourself. But if you want to rent it out, you’ll need to refinance it in your own name. So when you’re inheriting a home, make sure you understand the size of the mortgage and your ability to repay it. Otherwise, you could be in for a nasty surprise.
The House May Need Repairs and Upgrades
With respect to what can go wrong when you inherit a house in TN, 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 TN? 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.