Anyone inherited a house? tax question...

[luvthatdisney]

Hi guys,

I know most of you are not tax experts, but I do not know if I need to hire someone to do our taxes or not. I usually do them myself - to save money

Anyway, I inherited my father's small house last year and I assumed his mortgage. I started paying the house payments last May and have paid them ever since. We are currently remodling the house to hopefully sell in the coming months. No one has lived in it since he passed back in April.

I have been reading the IRS memos on the subject, but I am getting more and more confused. What I need to know is if we can deduct the mortgage interest we have paid since May. Some places I have read, it appears we can, but I cannot find anything that is cut and dry that is the case.

I really started questioning it when I received the interest statement today. It is is my fathers name in care of me and my address. The social security # listed on the form is my fathers. He did not have enough income to do a estate tax return to file this on. However, since May the interest paid came out of our pocket.

Has anyone been through this before???? I am going to look into hiring someone to do our taxes, but I am not sure if I can afford an "expert". Meaning not H&R Block.

 

[Tink888]

Hi guys,

I know most of you are not tax experts, but I do not know if I need to hire someone to do our taxes or not. I usually do them myself - to save money

Anyway, I inherited my father's small house last year and I assumed his mortgage. I started paying the house payments last May and have paid them ever since. We are currently remodling the house to hopefully sell in the coming months. No one has lived in it since he passed back in April.

I have been reading the IRS memos on the subject, but I am getting more and more confused. What I need to know is if we can deduct the mortgage interest we have paid since May. Some places I have read, it appears we can, but I cannot find anything that is cut and dry that is the case.

I really started questioning it when I received the interest statement today. It is is my fathers name in care of me and my address. The social security # listed on the form is my fathers. He did not have enough income to do a estate tax return to file this on. However, since May the interest paid came out of our pocket.

Has anyone been through this before???? I am going to look into hiring someone to do our taxes, but I am not sure if I can afford an "expert". Meaning not H&R Block.

I don't know the answer to your question but I would suggest contacting the attorney that handled your father's estate. They should be able to answer the question and also tell you if you are subject to any capital gains tax on the value of the house and what remains on the mortgage. They might even be willing to prepare your taxes for you.

 

[barkley]

i'de suggest the lawyer who handled the estate as well. is the house legaly in your name yet? did you re-finance it or just continue paying the payment under your dad's loan (this could explain why the interest is still being reported under his ss#)?

after you talk to the lawyer i'de suggest getting a REAL tax preparer (not a seasonal tax place-we personaly use a cpa whose certified to do taxes). this can be especialy valuable if the house is located in another state (we've had to research inheritance issues lately and good lord the tax laws vary state to state, and if 2 states are involved they both want to get as much as they can from you). the professional tax person can also give you great advice on how to handle an eventual sale, and what documents to get (when a family member sold a home she inherited she saved allot on capital gains by doing some kind of deal with the realtor to document the value at inheritance vs. the value at sale offset by what repairs and the sale commision cost her-but it was important that she got certain documents in a certain time frame to document everything).

 

[allison443]

You say you "inherited" the house...how did you inherit it? Was it by your father's will? Or were you listed as a co-owner and when he died his share passed automatically to you?
In either case I believe there should have been something filed (either an executor's deed or some other form) to take his name off the house and put it in your name.
Is the mortgage in your father's name only? Did you notify the mortgage company of your father's death and that you were the new owner?
I think you need to contact an estate attorney if you don't already have one.
Good luck and I'm sorry about your dad passing.

 

[The Mystery Machine]

I don't know. I would certainly get some professional advice on this one.

 

[jel0511]

As stated above, did you inherit the house through a probabated will, or as the only surviving child? I'm guessing you didn't refinance the house, since the mortgage still is in your dad's name. You need to contact a lawyer IMMEDIATELY if you just continued to pay on your dad's mortgage and the deed never was changed to just your name. Technically, if you just paid your dad's mortgage, regardless of his death or not, the mortgage interest is your dad's to deduct, not yours. In the eyes of the mortgage company, they still think he's still alive, they sent the 1099 to your address in c/o of you, thinking that's where he gets his mail. Were they (the mortgage co) informed of his death? You potentially have more problems than who the interest should be deducted from... PLEASE CONTACT AN ATTORNEY OR CPA IMMEDIATELY! I'm sorry about your loss.

 

[golfgal]

As stated above, did you inherit the house through a probabated will, or as the only surviving child? I'm guessing you didn't refinance the house, since the mortgage still is in your dad's name. You need to contact a lawyer IMMEDIATELY if you just continued to pay on your dad's mortgage and the deed never was changed to just your name. Technically, if you just paid your dad's mortgage, regardless of his death or not, the mortgage interest is your dad's to deduct, not yours. In the eyes of the mortgage company, they still think he's still alive, they sent the 1099 to your address in c/o of you, thinking that's where he gets his mail. Were they (the mortgage co) informed of his death? You potentially have more problems than who the interest should be deducted from... PLEASE CONTACT AN ATTORNEY OR CPA IMMEDIATELY! I'm sorry about your loss.

You will also have issues when it comes time to sell the house if you have not legally assumed ownership of the house and the sale of the house could create tax issues as well. You need to get in touch with an attorney, today.

 

[luvthatdisney]

Thanks guys for the responses, here is a little more info...

1. The house went through probate and was given to me in his will. I am also the only surviving child and was also the excutrix of his estate.

2. The house is only a few streets over from me.

3. The bank is aware he is deceased as we shared a checking account and I made them aware of his death right afterwards. They had to give me a copy of is mortgage paperwork as he must has thrown what he was given away. The tax form that came regarding the mortgage interest was sent to him, but in c/o of me at my home address so they know. The payment statements have both of our names and come to my home. I guess since he was the actual owner in part of 2009 the tax form was sent out in his name.

4. Our attorney stated when the will was probated the deed to the house would be changed automatically at the courthouse into my name. I would not have to do anything for that to happen. I am aware the deed and the mortgage are not the same thing, but I cannot afford to refinance the house and we are going to put it on the market shortly.

I will contact our attorney and see what they say. However, his estate has been finalized and I cannot afford to pay them for information, they are very very expensive! I will also look into finding a professional tax preparer, but how do you tell if you have one or not. We do not have alot of money and all extra money we had has been put into that house to get it ready for sale. I know I cannot afford a CPA. I know it will probably save me money in the long run to get professional advice, but I cant get blood out of a turnip

 

[golfgal]

Thanks guys for the responses, here is a little more info...

1. The house went through probate and was given to me in his will. I am also the only surviving child and was also the excutrix of his estate.

2. The house is only a few streets over from me.

3. The bank is aware he is deceased as we shared a checking account and I made them aware of his death right afterwards. They had to give me a copy of is mortgage paperwork as he must has thrown what he was given away. The tax form that came regarding the mortgage interest was sent to him, but in c/o of me at my home address so they know. The payment statements have both of our names and come to my home. I guess since he was the actual owner in part of 2009 the tax form was sent out in his name.

4. Our attorney stated when the will was probated the deed to the house would be changed automatically at the courthouse into my name. I would not have to do anything for that to happen. I am aware the deed and the mortgage are not the same thing, but I cannot afford to refinance the house and we are going to put it on the market shortly.

I will contact our attorney and see what they say. However, his estate has been finalized and I cannot afford to pay them for information, they are very very expensive! I will also look into finding a professional tax preparer, but how do you tell if you have one or not. We do not have alot of money and all extra money we had has been put into that house to get it ready for sale. I know I cannot afford a CPA. I know it will probably save me money in the long run to get professional advice, but I cant get blood out of a turnip

If you are going to sell the house soon it probably doesn't make sense to refinance. Is there any equity in the house? What was the value of the home when your father passed away? That is your cost basis for the home and it is a VERY important number for you to know because you will get taxed on the gains from the house but if that number is small, not an issue. If the house never legally transferred to you and you sell the house, you pay gains on the total gain--so if your Dad bought the house for $8000 and you sell it for $778,000, you pay tax on the gain of $770,000. If the house was worth $770,000 when he died and you sell it for $772,000, your gain is $2000. In this market you could sell it at a "loss" too, which is actually not a bad deal for you. Say the house was worth $770,000 and you sold it for $700,000, you take a loss on the $70,000.

 

[Tink888]

Thanks guys for the responses, here is a little more info...

1. The house went through probate and was given to me in his will. I am also the only surviving child and was also the excutrix of his estate.

2. The house is only a few streets over from me.

3. The bank is aware he is deceased as we shared a checking account and I made them aware of his death right afterwards. They had to give me a copy of is mortgage paperwork as he must has thrown what he was given away. The tax form that came regarding the mortgage interest was sent to him, but in c/o of me at my home address so they know. The payment statements have both of our names and come to my home. I guess since he was the actual owner in part of 2009 the tax form was sent out in his name.

4. Our attorney stated when the will was probated the deed to the house would be changed automatically at the courthouse into my name. I would not have to do anything for that to happen. I am aware the deed and the mortgage are not the same thing, but I cannot afford to refinance the house and we are going to put it on the market shortly.

I will contact our attorney and see what they say. However, his estate has been finalized and I cannot afford to pay them for information, they are very very expensive! I will also look into finding a professional tax preparer, but how do you tell if you have one or not. We do not have alot of money and all extra money we had has been put into that house to get it ready for sale. I know I cannot afford a CPA. I know it will probably save me money in the long run to get professional advice, but I cant get blood out of a turnip

Just a heads up - a deed NEVER automatically changes at the courthouse without a new deed being prepared and filed. Things vary state by state and the filing of probate papers and a death certificate may be enough in North Carolina to show that you own the home. In other states, a new deed is prepared transferring title from the estate to the new owner.

When you contact the attorney who probated the estate, make sure to ask him for copies of the probate documents and death certificate if you do not already have them. For chain of title purposes, once you have a buyer, the title company will require copies of those documents and proof that any inheritance taxes (if applicable in NC) were paid.

 

[jel0511]

Thanks guys for the responses, here is a little more info...

1. The house went through probate and was given to me in his will. I am also the only surviving child and was also the excutrix of his estate.

2. The house is only a few streets over from me.

3. The bank is aware he is deceased as we shared a checking account and I made them aware of his death right afterwards. They had to give me a copy of is mortgage paperwork as he must has thrown what he was given away. The tax form that came regarding the mortgage interest was sent to him, but in c/o of me at my home address so they know. The payment statements have both of our names and come to my home. I guess since he was the actual owner in part of 2009 the tax form was sent out in his name.

4. Our attorney stated when the will was probated the deed to the house would be changed automatically at the courthouse into my name. I would not have to do anything for that to happen. I am aware the deed and the mortgage are not the same thing, but I cannot afford to refinance the house and we are going to put it on the market shortly.

I will contact our attorney and see what they say. However, his estate has been finalized and I cannot afford to pay them for information, they are very very expensive! I will also look into finding a professional tax preparer, but how do you tell if you have one or not. We do not have alot of money and all extra money we had has been put into that house to get it ready for sale. I know I cannot afford a CPA. I know it will probably save me money in the long run to get professional advice, but I cant get blood out of a turnip

What makes no sense to me is that when somebody dies, all loans usually "die" with them, meaning they need to be discharged with the death. IF the bank had flagged the mortgage as a death, unless you're also on the mortgage, you would have had to sell the house at the time to settle the mortgage. IF the deed had "automatically" changed like your attorney said it would, the mortgage company would have been notified about the change in deed, as they hold a lien on it. I'm beginning to think the attorney you're using isn't worth the toilet paper his/her degree is printed on. If you were on the mortgage, and the bank had processed your father's death properly, the interest statement would have been made out to you. I'm thinking that the bank and your attorney both dropped the ball on this one. If the attorney had made sure the deed had changed hands, the bank would have required full payment on the mortgage, as the holder of the property is no longer alive and unable to pay.

 

[Tink888]

What makes no sense to me is that when somebody dies, all loans usually "die" with them, meaning they need to be discharged with the death. IF the bank had flagged the mortgage as a death, unless you're also on the mortgage, you would have had to sell the house at the time to settle the mortgage. IF the deed had "automatically" changed like your attorney said it would, the mortgage company would have been notified about the change in deed, as they hold a lien on it. I'm beginning to think the attorney you're using isn't worth the toilet paper his/her degree is printed on. If you were on the mortgage, and the bank had processed your father's death properly, the interest statement would have been made out to you. I'm thinking that the bank and your attorney both dropped the ball on this one. If the attorney had made sure the deed had changed hands, the bank would have required full payment on the mortgage, as the holder of the property is no longer alive and unable to pay.

I don't think anyone dropped the ball. Either the OP the assumed the mortgage and an Assumption of Mortgage would've been filed or she has just continued making the mortgage payments on the house while her father's name is still on the mortgage until the house sells. Estates normally can take anywhere from 9 months to a year to probate, even longer if property is on the market to be sold.

Really there wouldn't be any red flags going up with the bank because they are getting payments. The lien attaches to both the mortgagor and the property and will follow the property regardless of who owns it so from the bank's perspective as long as they are receiving the monthly payments, they are content to wait until the OP secures a buyer and the house sells to have the mortgage paid in full. Another factor is whether or not the bank is one of the "big" ones or a local neighborhood bank and the personal relationship the OP has with the bank.

If anything it sounds as if the estate might still be open which wouldn't be abnormal.

 

[crusoe2]

I am actually in a very similar situation. My mother died last March and left me a house that still has a mortgage. What we were told was that, provided the monthly payments continue to be made, the bank would not push on having the mortgage paid in full until we actually changed the deed over to my name. At that point, I've either got to get financing in my name for the remaining amount on the existing mortgage or I must have the cash to pay it off. Until this is done and the house is actually in my name, we won't be able to claim the interest paid on the loan on our income taxes. That isn't a major issue at this point because most of the loan as been repaid and now most of each payment goes toward paying off the principal. Very little of it is interest. As for having to pay tax on what I inherited, we were told that the total value of my inheritance doesn't come anywhere near being enough to get taxed. But we live in an area where housing costs are very low compared to other parts of the country. We haven't had the house appraised yet but it probably wouldn't be worth much more than $100,000, if that. I haven't given much thought to capital gains on it as I have no intention of selling it anytime soon. Hope this helps.

 

[DancingBear]

I haven't given much thought to capital gains on it as I have no intention of selling it anytime soon. Hope this helps.

The fact that you don't plan to sell anytime soon is all the more reason to try to establish what the value of the house was when you inherited it, so that when you do actually sell it you will only have potential capital gains on the increase in value from the time of inheritance.

 

[DancingBear]

OP, you said

The payment statements have both of our names and come to my home.

Did you sign anything with the Bank making you liable for the loan itself?

 

[crusoe2]

The fact that you don't plan to sell anytime soon is all the more reason to try to establish what the value of the house was when you inherited it, so that when you do actually sell it you will only have potential capital gains on the increase in value from the time of inheritance.

That's a good point and I hadn't thought of that. Thanks DancingBear.

 

[barkley]

The fact that you don't plan to sell anytime soon is all the more reason to try to establish what the value of the house was when you inherited it, so that when you do actually sell it you will only have potential capital gains on the increase in value from the time of inheritance.

very true-my former cpa said the one thing he tried to realy instill in the minds of his older clients, and those he knew might be inheriting a home down the line was to immediatly get a fmv done upon the death of the owner.

establishing the value of the home at the time one inherits (or in the case of a home co-owned where one owner predeceases the other and that person attains full ownership) is a valuable tool for both inheritance taxes and capital gains.

speaking from personal experience-you do NOT want to try and figure this out after the fact. trying to get a fmv on mil's house several years after fil passed was no picnic (and i imagine with the constantly changing home values in some regions these days it could be a nightmare to pinpoint a fmv after the fact when there are no historical comp sales for a period of time).

 

[NCRedding]

Here is the law in North Carolina. Your NC lawyer is correct. The will in NC which was properly probated serves in the capacity of the deed. There is no further need for any additional deeds, etc.

The mortgage (or deed of trust) remains on the property. It is not required to be paid off at the time of death nor is there any requirement that the house be sold. In fact, it is illegal to call the loan due to a death of the borrower. The heirs inherit the property at the death of the owner. The land comes with the mortgage. If the heirs continue to pay, no problem. If not, the house is foreclosed upon, BUT, the heirs are not personally liable for the foreclosure.

To answer the tax question, do not call the attorney. Call an accountant. Whether or not the mortgage interest is deductible as an itemized deduction depends upon whether you plan on treating the house as your principal residence or investment property. It may also depend upon whether you have a current mortgage on a primary residence or not. If you hold the property for investment, then you might be able to deduct the interest as a cost of investment.

As to the capital gains, when you filed your preliminary inventory and later inventories, a value for the property was listed. Usually, this value is tax value, which may or may not reflect the actual value. Look at that paperwork to see if that value is acceptable. If not, you may want to consider getting an appraisal to set the actual value, as of your father's date of death.

 

[Poohs Wishing Star]

Hi!

If you need to discuss tax issues with an expert, try to locate an Enrolled Agent. These people are tax experts who are required to take numerous courses in tax law and ethics, followed by a test similar to the law bar exam in order to be declared an Enrolled Agent. They also must continue to take courses in tax law and ethics, and be re-certified by the U.S. Department of the Treasury, on a continuing basis.

Normally, they are not as expensive as a CPA, and are more qualified to answer tax questions than someone from a nationwide tax preparation chain. However, to be fair, some of the tax preparers who work for these chains are enrolled agents. (They may work for these chains because the cost of professional insurance and the necessary tax return preparation programs are prohibitive for a small tax preparation business owner.)

To locate an enrolled agent, go to the website, NAEA.org. (National Association of Enrolled Agents) On this site, you will be able to read for yourself the definition and qualifications of an Enrolled Agent. It is very detailed as to what these people must do to acquire and maintain certification once earned.

You also will be able to use the search engine on the website to locate one close to you. The search for this is on the left side of the webpage, 1/2 way down the page. It is under the heading, "For Taxpayers", and then, "Find an Enrolled Agent".

I hope that this information will help you.



RJ

 

[luvthatdisney]

Thanks so much everyone for all of the responses. I had given the bank a certified copy of the death certificate and they took my information, so I knew they were aware of his death. They said to continue making the payments and there would be no issues. Of course, they want their money

I know we will have to pay some capital gains as the house was valued around $57k at the time of his death on the probate inventory, but we have made some improvements as we were going to rent it out. We are going to have it appraised (a friend of ours does it for a living), but I think it will come in around $85k. That is fine we were aware of it, we are just cut out to be landlords!!!

I am going to look into the Enrolled Agents and see what there is in my area. I realize I do need help with our taxes this year.

Thanks again!