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.
The more information you have the better, so here’s some of what can go wrong when you inherit a house in Texas.
What Can Go Wrong When You Inherit a House in Texas
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. These circumstances can vary from case to case.
So in considering what can go wrong when you inherit a house in Texas and when you intend to sell it, you need to consider the stepped-up capital gains situation. This could impact you more if you hold on to the property for a long time.
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. You always want to consider all of the tax consequences when selling an inherited house.
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’s common for elderly people to still owe a mortgage on their house, have refinanced their house, or have taken out a reverse mortgage on their home. This is more often the case when the person had recently moved or they needed to refinance their home in order to supplement insufficient retirement funds.
You need to be aware, 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. Even if you are an heir to the property it may be difficult to get much information from the mortgage company if you do not have an established right to do so. So if you intend to keep 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 Texas, 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 are used to the older style or 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 can find yourself having 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, replacing a roof, or re-wiring the house will involve a big chunk of money. Even simply upgrading the outdated property can quickly add up to a large bill.
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 this can be.
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. It is always better if you can get all the heirs on the same page and come to an agreement that everyone is ok with.
So what can go wrong when you inherit a house in Texas? Quite a lot, actually, if you’re not up to speed on tax laws, mortgages, and upgrade issues. But selling an inherited property doesn’t have to be hard. It can be best to contact a professional who is experienced in buying inherited properties and can walk you through the process.