Inheriting a home in Massachusetts can be a life-changing experience, especially when there is no outstanding mortgage on the property. The process of inheriting a home isn’t always straightforward, however. Understanding the legal and tax issues associated with owning a home can help you save time and money after inheriting a house.
1. Understand How You Inherited the House
Massachusetts allows people to own real estate as joint tenants. When one of the joint tenants dies, the house passes automatically to the joint tenant or tenants. Investigate the status of the home’s title and the mortgage. The title will state whether or not the property is held in joint tenancy with a right of survivorship. You will be able to discover whether or not there are any outstanding liens on the property after checking with the mortgage company. If you inherited the house through a will, a judge would need to approve the transfer in the probate process.
2. Decide Whether You’d Like to Claim the House
You might decide to reject the house. For example, if there is a significant mortgage on the home, you may not want to accept the house. Sometimes people inherit houses that are “underwater,” meaning that the mortgage amount owed on the house is higher than the value of the house.
Should this be the case, you might decide to let the house become foreclosed. If you choose to accept the house, it is wise to speak to an experienced estate planning lawyer as soon as possible. In some instances, you might be able to repair the house and sell it for a high enough price to make a profit, even with a mortgage on the property.
3. Inheritance Tax in Massachusetts
Massachusetts does not impose an inheritance tax. There is a state estate tax in Massachusetts, however. Estates valued at over $1 million must pay an estate tax. The beneficiaries will inherit the remainder of the estate. The federal government also typically imposes an estate tax on estates larger than $11.58 million.
4. Capital Gains Tax in Massachusetts
When you inherit a house in Massachusetts and sell the house, you will need to pay capital gains taxes. You should expect to pay capital gains tax based on the difference between the current appraised value of the house and the selling price of the house. The current appraised value of the house is the “stepped-up basis.” For example, if your grandparents paid $200,000 for a house and it appraised for $600,000 at the time you inherited it, the basis will be $600,000. If you sell the house for $650,000, you’ll only pay capital gains on the difference of $50,000.
If you inherit the house and sell it for less than the appraised value of the house, you will be able to deduct the amount of the loss. When a house sells for less than its appraised value, the beneficiary will not need to pay any capital gains taxes on the sale.
Our Experienced Estate Planning Lawyers Can Help
Going through the estate planning process can be stressful and intimidating. If you’ve inherited a house, you might have concerns about whether keeping the house is a financially worthwhile option. Should the house have an outstanding mortgage on it, you may need to sell the house. Whether you have inherited a house and need representation during the probate process, or you’d like to create an estate plan that includes your house, our legal team can help. Contact the experienced estate planning lawyers at Surprenant & Beneski, PC today.