4 Things to Be Aware of When You Inherit a House in Nebraska

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If you’ve suddenly inherited a house, you may not be prepared for the impact it may have on your financial situation. We hope some of the information in this piece will alert you to a few things to anticipate if and when you find yourself in this situation.  

4 Things to Be Aware of If you Inherit a House in Nebraska

You May Owe More Taxes than Anticipated

Unlike an estate tax, which paid by a decedent’s estate before assets are distributed to heirs, an inheritance tax is a tax on what you (as a beneficiary) receive. Anyone in Nebraska who inherits property should be aware of the state’s inheritance tax. As of 2019, just 6 states collect inheritance taxes, and Nebraska is one of those states! The other states in case you’re interested are Iowa, Kentucky, Pennsylvania, New Jersey and Maryland. Unfortunately, Nebraska has the highest top inheritance tax rate of 18%. The rate at which the inheritance tax will affect you in Nebraska is determined by your relationship to the person who passed away. We won’t go into all the details of the relationships and tax rates here. Just be sure to talk with an accountant well before your taxes are due, so you can plan to pay inheritance tax if you inherit a property in Nebraska.

Another tax you should be aware of if you inherit a home and decide to sell it is the capital gains tax. A “capital gain” is simply when you sell an asset or investment and make a profit. When you inherit a property, it’s very likely worth more than what the prior owner paid for it. So when you go to sell it, you will probably experience a capital gain, and you’ll have to pay a capital gains tax. However, in the case of inherited property, fortunately, the property’s tax basis is no longer based on what the decedent paid for it, but the tax basis is “stepped up” to the fair market value (FMV) of the property at the time of their death. So the step-up allows you to pay a capital gains tax on the gain you make above the fair market value at the date of the decedent’s death. Once again, it’s wise to speak with your accountant in advance of tax time!

The Mortgage Situation May Be Complex

Generally in the past, when an elderly parent or relative passed, the mortgage on their house was paid off. These days, though, it’s quite common for elderly people to take out a reverse mortgage on their home to supplement retirement funds. A reverse mortgage can be taken out by people 62 and older when they have significant equity in their homes. This special type of loan allows them to pull out cash to be used for other expenses.

When the person with the reverse mortgage passes away, their heirs can either repay the loan or sell the home. Sometimes the home has to be sold to repay the loan. The thing to know is that a reverse mortgage can’t be assumed by heirs.

Also of note is that in the case of a standard mortgage, don’t assume you can simply move into the inherited home and make payments without speaking with the lender. Some of the rules have changed in recent years, making it easier for heirs to take over the mortgage, but you’ll want to reach out to the lender as soon as possible if you are the heir who receives property. You can discuss the situation and your intentions – whether that is to move into the home yourself or keep it as a rental. In either case, be deliberate and timely in talking with the mortgage lender.

Repairs and Upgrades Are a Likely Reality

With respect to you should be aware of when you inherit a house in Nebraska, this one may be costly. Most of the time, people inherit a house from a deceased elderly parent or a very close relative. In addition to not having the physical ability to perform maintenance and upgrades themselves, 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 much longer.

If you plan to live in an inherited house, repairs and upgrades may not be a big concern or something you choose to spend money on right away. But if you intend to rent or sell the property, you’ll have to make repairs to make it presentable and invest in the upgrades to bring it up to code to meet other legal and insurance requirements. Installing a new HVAC system or re-wiring the house is expensive so this is good to know about and plan for if possible.

Relationships with Relatives and Joint Heirs Need to be Handled Sensitively

But what if you’re not the only heir? This can be a sensitive issue. 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. This could cause some sleepless nights for sure!

In most states, joint heirs of a home are considered tenants in common, and one heir can force a sale if it comes to heirs not being in agreement about what to do. You should realize the process, however, is expensive, and the emotional and familial consequences can be dramatic as well. So please tread carefully here and seek counsel from a good attorney.

As you can now see, when you inherit a house in Nebraska there’s a lot to be aware of before taking action. Tax laws, mortgages, and upgrade issues need to be carefully considered. And honestly, It is best to contact qualified professionals in these areas to provide you good advice. For simplicity’s sake, if you do decide you’d like to sell the property to a cash home buyer, we can help talk through this option with you to see if it makes sense for you and your family.

We’re ready to help you reach your real estate goals and will be glad to answer questions. Contact us at 402-313-8700.

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