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Inherited house in terrible condition

Posted by Milodon (My Page) on
Wed, May 23, 12 at 18:13

Hi All,
So here is the situation:
Friend's mother dies and in the will leaves the house to her. House is in terrible condition, plumbing problems, roof and ceiling falling apart and serious water damage. Add to that its not like houses in that area are worth much in good condition.

As it sits right now its still in the mother's name and I've just been helping mow the lawn etc but not much else has been done. Is it worth even trying to sell? There is no money to repair anything and whatever the house sells for is still taxable so it becomes even less worthwhile for the effort. What is the best way to unload a house in this type of situation? Do all the steps to move it into the daughters name have to be done first? Not that I know what those steps are......

Thanks!


Follow-Up Postings:

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RE: Inherited house in terrible condition

She will have to pay taxes on it; even if you tear down the house there are still property taxes, although they may be very low. She might consider donating it to a charity?


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RE: Inherited house in terrible condition

she does not have to accept the house. she should consult
with a probate/estate attorney re her options. it is well worth
a one hour consult fee.


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RE: Inherited house in terrible condition

>She might consider donating it to a charity?

I have a friend who is charge of funding for a small offbeat non-profit and even they get regular offers of property like this. It's no use them, either, unfortunately, if it's not easily sold.


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RE: Inherited house in terrible condition

The charity thing is something I've been thinking about the last couple of days myself.
I plan to do some research on the taxes to get an idea if say it sold for $20k (random number) would the walk away after tax and any fees be way under $10k.
I've never sold a house, would a realtor even sell something like this and handle all paperwork? Any idea what a consult with a probate/estate attorney should cost? Want to know if I shop around.


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RE: Inherited house in terrible condition

And thanks for the advice given!


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RE: Inherited house in terrible condition

Why would she be paying taxes on a house willed to her by her mother? There shouldn't be any inheritance taxes on something that comes down in a direct line, unless it's worth over $650,000 (that threshold might even be higher now). Taxes are usually paid on estates that are either extremely large, OR that come down 'sideways' (aunt to niece, for example).

She definitely needs to consult BOTH a lawyer and an accountant so she gets accurate information on where she stands on this and what her options are.

Still, as long as there is some profit (and $10,000 is nothing to sneeze at), it would seem well worth selling the property for whatever she can get for it.


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RE: Inherited house in terrible condition

What azalea said: the beneficiary of a will pays no taxes. If the estate is worth more than a few million, then the estate pays taxes, and the rest is distributed to the beneficiaries as provided in the will.

Let's suppose, for simplification purposes, that the only asset Mom left was the house, she had no other assets or debt, and your friend is the sole beneficiary. Then Friend sells that house and pockets 100% of the proceeds.

Someone will buy it, at some price >zero, so it's worth selling. And she doesn't need to transfer it to her name to sell it. The estate can sell it (liquidating the estate's assets) and the proceeds given to Friend.


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RE: Inherited house in terrible condition

I know there is a few hundred dollars in liens against the house but I think that's it. So weedyacres I'll use your info as the basis for my questions when I talk to a pro. Seems like the best scenario so hopefully it works out like that :)
Do you have any links with specifics so I can go in more educated before talking to anyone? I'm going to search the IRS and California Tax websites later.


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RE: Inherited house in terrible condition

attorney fees vary depending on where you are. you can call your local
county bar association and they can give you a ballpark and maybe
some names of attorneys specializing in this. ask friends/ relatives
for recommendations of attorneys they have been satisfied with , but make
sure the attorney is knowedgable about probate/ real estate. a divorce
attorney or personal injury attorney won't be of any help!
your accountant should have some referrals.good advice to work
with an attorney and accountant. you might want to start with the attorney
who drafted the original will, if you think he/she is any good. good luck!


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RE: Inherited house in terrible condition

If there are liens against the house for property taxes, they may be taken from the estate.

You may be able to abandon the property to the city, county or state and get clear of it.


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RE: Inherited house in terrible condition

"Why would she be paying taxes on a house willed to her by her mother?" There might not be inheritance taxes, but wouldn't she be responsible for property taxes while it's in her possession? She'd also need to have insurance and probably pay for electrical service while it's on the market (no one wants to look at a dark house.) Depending on what she can sell for and how long it's on the market, she might lose money on the house.

I agree that she needs to meet with an atty with expertise in this area.


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RE: Inherited house in terrible condition

There shouldn't be any inheritance taxes on something that comes down in a direct line

I don't think that the relationship matters. Whether you inherit from a "direct line" relative or a stranger, it's the estate that pays any taxes due, not the person that inherits. When my father died, his wife (not my mother) became the sole owner of the house (title was held as tenants by the entirety). She named my brother, sister and I in her will, and when she passed away the home was sold and the proceeds were shared by us. We paid no taxes on that money, and she was not related to us at that time.

I would just get a Realtor, find out what the property is worth in its current condition and sell it as is.


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RE: Inherited house in terrible condition

Why would she be paying taxes on a house willed to her by her mother? There shouldn't be any inheritance taxes on something that comes down in a direct line, unless it's worth over $650,000 (that threshold might even be higher now). Taxes are usually paid on estates that are either extremely large, OR that come down 'sideways' (aunt to niece, for example).

She definitely needs to consult BOTH a lawyer and an accountant so she gets accurate information on where she stands on this and what her options are.

Still, as long as there is some profit (and $10,000 is nothing to sneeze at), it would seem well worth selling the property for whatever she can get for it.


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RE: Inherited house in terrible condition

Call a few real estate agents to come tour the home and discuss listing with them to sell it. Have them do comps and give an idea of their marketing plan.

Then your friend will know what the home is worth as far as selling. Your friend can ask the realtor questions about condition and liens. Realtor likely knows of items that must be fixed before a sale or realtor would recommend to sell AS IS, etc.

You really need this but don't sign anything to list with an agent yet.

Another option is to hire a licenced real estate appraiser to give the estimated market value. Realtor option is free plus you probably want to list it anyway. appriaser is probably $200-$500.


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RE: Inherited house in terrible condition

"Why would she be paying taxes on a house willed to her by her mother?"

Once you own it you have to pay property taxes and any other local assessments.


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RE: Inherited house in terrible condition

There is no national estate tax applicable for this level of estate. However, there may be State estate taxes. If so, the estate needs to settle those before the property can be disbursed.

Once a person owns the property - no matter how they got it - they are responsible for all ongoing taxes, fees etc. Any annual property taxes should be split between the new owner and the estate based on the portion of time the property was in their possession.

And yes, any house can be sold. You might not get much for it, but something is better than nothing. That is assuming their is no mortgage. If there is a mortgage that is larger than the anticipated sale price, she should just refuse the inheritance and let the estate take the loss. Either way, it is time to call an experienced lawyer to get this settled.


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RE: Inherited house in terrible condition

Lots of good info coming here. I've asked friends and relatives, even a friend who is in real estate who promised info and flaked. All I really get is the general "yeh that needs to be sold man!" :)
Just to be clear when I mention taxes I am just referring to sales tax, the actual property tax which is very low is being kept up to date.
I'm at work but when things calm down I'll re-read the whole thread in case I'm missing something or not answering a direct question. I appreciate the help.


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RE: Inherited house in terrible condition

"whatever the house sells for is still taxable"

This is incorrect (at least for federal taxes and many localities).

As the heir you get the cost basis of the property on the date of death (or other date selected by the executor).
This is the value the estate pays taxes on (if any are even due).

If you inherit a house valued at $50,000 by estate, and then sell it for $50,00 you have not made any taxable gain (at federal, but check state).

'Stepped up cost basis' on death is one of the last big tax shelters.


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RE: Inherited house in terrible condition

"What is the best way to unload a house in this type of situation? Do all the steps to move it into the daughters name have to be done first? Not that I know what those steps are......"

I wouldn't put the house in anyone else's name or the new owner will probably end up having to pay the taxes.

How to Refuse to Inherit a House
By Tom Streissguth, Demand Media-Legal Zoom

"For various reasons, you may wish to disclaim property that was willed to you by a relative. Beneficiaries may file such a disclaimer to save income and property taxes, avoid the expenses of ownership, or to pass the property on to another heir. Although a disclaimer can be a brief and simple document, it's important to follow the relevant state laws, as well as IRS rules and guidelines, whenever taking this action.

Step 1
Create a document, heading it "Disclaimer." IRS rules require that you prepare and execute this document within nine months of the death of the person who made the bequest. If you miss the deadline, the property automatically becomes a personal asset for income tax purposes......."

A link that may be useful

info.legalzoom.com/refuse-inherit-house-20716.html


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RE: Inherited house in terrible condition

Have you talked to the property owners on either side of the property? It almost seemed possible you were talking about our neighbor's house, which we (or probably the people on the other side, for that matter) would buy tomorrow provided they were realistic about what it's worth. Now, granted, that's literally under $5K, but the value isn't going to increase if they don't put several thousand dollars into it, like, yesterday (the roof has desperately needed replaced for a solid three years- it's not to the point of being condemned, but it's not far off, either).


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RE: Inherited house in terrible condition

"If you miss the deadline, the property automatically becomes a personal asset for income tax purposes......."

Except that your cost basis is set by the estate, and is stepped up to the value on the date of death.

Unless you sell for MORE than the cost basis, there is no federal income tax due.

If grandma paid $10 for th eplace 50 years ago, and it is worth $ 100,000 when she dies, your cost basis is the $100,000.
If you sell for $100,000 you have no income to report.


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RE: Inherited house in terrible condition

The estate will have to pay any property taxes or liens on the home before transfer of ownership. This year 2012 the exemption for estate taxes is 5,120,000.00 for estate tax purposes and set to revert back to 1,000,000 after 12/31/2012. So it is highly unlikely her estate will owe estate taxes. She will probably be able to sell it, perhaps as a tear down and receive some money.


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RE: Inherited house in terrible condition

She should consult with an attorney.

Another option if the land is valuable might be to tear down the house and sell the land. She should talk to a real estate agent about what it would likely sell for as is and what it might sell for if sold after tearing down the house.


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RE: Inherited house in terrible condition

"Another option if the land is valuable might be to tear down the house and sell the land."

Just sell it with the house intact.

Let the buyer bear the expense of a tear down.


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RE: Inherited house in terrible condition

There are many different type of taxes and they have different rules. There are a few that I can think of concerning this house.

1. Federal estate and/or gift tax (inheritance tax is not the term used by our government.)
http://www.irs.gov/businesses/small/article/0,,id=98968,00.html
2. State and local estate tax
3. Excise(sales) tax based on the sale of the house in some states.
4. Property tax
5. Federal income tax
6. State and local income tax

Many of these taxes are inter related. The heir may not have to pay any or all of these taxes depending on the circumstances. The heir still need to find out what the laws are regarding these taxes.

Attorneys are extremely expensive; several hundred $ an hour. In small estates like this, it not worth the attorney fee unless he/she will work for a nominal fixed fee.

The research for your tax liability is not that hard. Anyone with a high school reading level should be able to figure it out by doing dilligent reading of the IRS publications and google searches. Additionally, if you go talk to county or state records office they can often give you the necessary information to get you started.


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RE: Inherited house in terrible condition

Any house will sell... believe me! I have an investor client that has bought one home for $12,000 (3br/2 full baths, all brick), and we are closing on another this Fri. that he paid $11,000. Both are in horrible shape, but he is a handy man and loves these types of properties.
Most agents will forgo the conventional commission and expect a minimum commission of about $2000. This way each agent will get $1000. Any lower and it is just not worth our time.


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RE: Inherited house in terrible condition

I have a friend who is also is this position. Her father had been on Medicaid approximately 1 year previous to dying, so that would be a huge lien against a condo that has little value. My friend has been paying the bills of the estate. I advised her not to do this -- somewhere I had heard the advice not to comingle funds. I told her to see an attorney ASAP -- because she might be better off refusing her inheritance. What happens if you refuse the inheritance? Thanks
Susan


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