If you’ve suddenly inherited a house, you may not be prepared for the questions and issues that can arise. If you make the wrong decisions, you will likely encounter financial, emotional or even family problems before long.
Forewarned is forearmed, they say, so here are some of what can go wrong when you inherit a house in PA.
What Can Go Wrong When You Inherit a House in PA
You May Owe More Taxes than Anticipated
Most people do not 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. Also mostly suspended in 2010 was the step-up provision. Considering what can go wrong when you inherit a house in PA 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 initially.
The Mortgage May Be Bigger than You Thought
Generally in the past, when an elderly parent or relative passed, the mortgage on their house was paid off. These days, though, it is common for elderly people to take out a reverse mortgage on their home to supplement insufficient retirement funds.
You need to be aware, then, that a reverse mortgage cannot be assumed by heirs. 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
With respect to what can go wrong when you inherit a house in PA, 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 do not have the money for it either. If they do, they may simply choose not to because they know they will not be living in the house much longer.
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 will have to make repairs to make it presentable and add a few 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 are 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 potential powder keg waiting for a spark this might entail.
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 PA? Quite a lot, actually, if you are 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.