The Four D’s of Real Estate: #1 Death
No two home sales are the same, but there are certain common factors that influence many home sale decisions in Florida. We call these “The Four D’s” of real estate: Death, divorce, disaster, and debt. While ominous and often unpleasant, many homeowners struggle to cope with these issues when they arise. It’s easy to feel overwhelmed and frustrated when circumstances outside of our control force us to sell. But that doesn’t mean that homeowners don’t have options! In the coming weeks we will explore each of these circumstances as they relate to selling a home, starting with the big one: Death.
Death is not the end….(for a home).
The loss of a loved one is often devastating. It is a time of mourning, grief, and confusion, and the last thing that should be on your mind is what will happen to the estate of the deceased. But unfortunately, the debts, assets, and obligations of an individual don’t pass to the next life. They are inherited by the living, and difficult decisions must be made to ensure that assets and property are correctly distributed to the heirs.
The most important of these assets is usually the home or property owned by the deceased and there are many aspects of inheriting a home for the heirs to consider including taxes, maintenance, and even the mortgage.
Where there’s a will….
Before determining what assets, including real estate, will be inherited and by which heirs, the attorney handling the estate will first need to determine if the deceased left a will. If there is a will, the assets will be distributed according to state law, (Florida Statutes in the case of Florida) and the direction provided in the will by the deceased.
However, if there is no will, the process becomes more complicated. This situation is called an Intestate Succession and the inheritance of property will be determined solely by state law (in Florida’s case to the closest living relatives.)
Probate: what is it and do I need it?
In situations where an estate was left intestate, a legal process called probate will determine who the beneficiaries are, including who will inherit any property the deceased might have owned.
We won’t delve too deep into the probate process in this post, but you can learn more about probate HERE. In the meantime we will touch on the key items you’ll need to know when inheriting a home.
In Florida probate is required any time that a person passes away without a will or trust. Most assets including real property, insurance policies, bank accounts, and retirement accounts will be distributed through probate, assuming that these assets were in the deceased’s name alone.
Probate is handled through the court system and requires the assistance of an Attorney in Florida. Depending on the size of the estate and the number of claimants for the assets, probate can take as little as a month or as long as a year.
Inherit the memories, not the mortgage
The next thing to consider once the probate process has been completed and the home has been passed in title to the beneficiaries and heirs of the estate, is the financial responsibility of inheriting the property. The largest financial responsibility that accompanies most real estate is the mortgage. When an individual dies and a property is passed through inheritance to an heir, the mortgage stays with the house and is usually assumed by the heir. Failure to pay the mortgage or will result in foreclosure, and the loss of the property.
For some individuals, the cost of inheriting a home can be a financial burden that they can’t handle, and in the long term exploring other options such as selling the home may be the best option. More on that later!
Taxes on an inherited house
Luckily for those in Florida, our primary market, the inheritance tax rate is zero, as Florida doesn’t have an inheritance, or estate tax. Additionally, there is no capital gains tax for individuals nor any state income tax, meaning that the profit gained by selling an inherited home wouldn’t be taxed at the state level. This is great news for individuals who might want to sell the property as they won’t have to pay capital gains tax or inheritance tax. In other states capital gains tax is often paid on the difference between the value at the date of death and the value at the time of sale.
However, it is important to consider property tax when inheriting a home, as it will be the responsibility of the heirs to pay any and all annual state and local tax, which in most municipalities could be thousands to tens of thousands annually. Failure to pay these taxes will result in a Tax Certificate sale and subsequent Tax Deed sale, and the eventual loss of the home.
Options for Inherited Houses
Once inherited, you will have a number of options on what to do with a house, and your decision should take into account aspects such as probate, mortgage payments, and taxes. Here are a few of the most common options owners of inherited properties choose:
- Keeping the home – If you choose to keep the home you will need to be sure to pay the mortgage and taxes on time. You will also need to ensure that the home is livable and free from city and municipal code violations that might have occurred during a time in which the deceased was unable to maintain the property. You may want to appraise the home and have it inspected to ensure it is a safe and reliable place for you and your family.
- Rent the home – like keeping the home for yourself, when choosing to rent out an inherited property you will need to ensure that the mortgage and taxes are paid in full. Additionally you will need to maintain the property, perform routine maintenance, collect rents, and keep insurance coverage. For some, depending on the situation, this can be a much desired income boost. For others, the owning and maintenance of a rental property can be costly and time consuming. Speak with a local property manager to determine if a rental is right for you. 3.
- Sell the home – Depending on your situation, selling the home might be the most financially feasible decision. If the home is worth more than the mortgage, you can earn a significant sum off of the sale, while mitigating the need to pay taxes or any mortgage. For many heirs and beneficiaries this is the best option.
Deciding to sell
If you decide that selling the home is your best option you have a number of choices on the best way to maximize your profits! If the home is in good repair and time is not a factor, listing the home with a real estate agent is a great option. However, you will be responsible for taxes and any mortgage while the home is listing and pending sale, which in Florida can take months depending on the situation!
The other option is to sell to a cash buyer as-is. That means without performing any repairs, maintenance, and in many cases even paying taxes or back taxes! Cash Home buyers can close quickly, sometimes in as little as seven days. Duval Home Buyers is able to pay cash for inherited properties in any situation, and can even help put you in touch with skilled probate attorneys to ensure the probate process is as quick and painless as possible!
No matter what you decide, it’s imperative to do your research so you fully understand the complications and responsibilities that come with inheriting property. It can be a financial windfall if done correctly, and an impressive burden if handled poorly.