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 New Orleans.
What Can Go Wrong When You Inherit a House in New Orleans
You May Owe More Taxes than Anticipated
Estate tax has a high exemption and was even temporarily suspended in 2010, so most people don’t have to worry about it. The step-up provision was also mostly suspended in 2010. When considering what can go wrong when you inherit a house in New Orleans you need to consider the stepped-up capital gains when you intend to sell it.
The step-up provides that you pay capital gains taxes (only on gains above the fair market value) at the date of the decedent’s death. The price the decedent paid for the house has nothing to do with it – unless the step-up falls under a year that it was changed. In this case, you may owe much more in taxes than you thought.
The Mortgage May Be Bigger than You Thought
In the past, the mortgage on a house was payed off when the owner passed. Today, to supplement inadequate retirement funds, it’s common for elderly people to take out a reverse mortgage on their home.
Keep in mind 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
In regards to what can go wrong when you inherit a house in New Orleans, this is probably the most expensive. People often inherit a house from a deceased elderly parent or very close relative. Along with lacking the physical ability to perform maintenance and upgrades, many elderly people don’t have the funds for it either. If they do have the funds, they may decide not to upgrade because they know they won’t be living in the house very many more years.
Repairs may not be concerning if you plan to live in the inherited house, but if you plan to rent it out or sell it, you’ll need to make repairs and upgrades to make it presentable, bring it up to code, and to 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
Suppose you and your siblings inherited the house jointly. If you want to sell it, your sibling may want to rent it, and your other sibling may want to live in it. If you’re not the only heir, it can cause 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 costly, and the emotional and familial consequences will be unpleasant.
So what can go wrong when you inherit a house in New Orleans? 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 issues quickly.