Inheriting Debts

By Edith Lank

August 13, 2017 5 min read

Hi, Edith: My mother has end-stage lung disease. In her will, I am the sole heir to her two properties, which are both underwater. Upon her death, do I simply continue making mortgage payments to the banks, or do I need to notify the mortgage holders of the change in ownership? — G. and M. S.

Answer: "Underwater," for those unfamiliar with the term, means more is owed on a property than it's worth.

You didn't say whether you want to keep the properties, but if you do, feel free to notify the banks of the change. Mortgages are not called in when there is an ownership transfer because of death.

When anyone dies, a lawyer should be contacted no matter how small the estate, even if only to learn that nothing need be done. If you don't want to inherit that real estate, I believe you can refuse ("disclaim") those bequests. The state may have specific procedures and time limits for doing that.

Swapping Homes

Hi, Edith: I am confused myself, so I hope I do not confuse you. The facts are as follows:

My wife and I are both retired and disabled. I am 71; she is 66. We own our two-story home free and clear. My mother, who's 93, lives with us. She owns a home in Arizona, which we live in half the time.

Our only child, whom we trust without reservation, owns her ranch home three houses down. She is 44 and married and has two daughters.

We have switched homes with her. Her family needed more space, and we needed a one-story home. We have yet to do anything legally. Edith, please help! The easier it is, the better and the more cost-advantageous it will be for us all. — J. L.

Answer: Sorry, Joe, but you've confused me also. You didn't say what you want to accomplish — straightening out ownership of those homes, I suppose? That's uncomplicated and relatively inexpensive. A lawyer can take care of the paperwork.

If you don't do that, there may be tax complications. Is there any chance of selling either house in the next few years and possibly losing the home seller exemption from capital gains tax? Does your state have homestead advantages? And who's paying property taxes? If you itemize, who is entitled to deduct them on income tax returns?

I hate to keep passing the buck, but you and your daughter need to go to a lawyer together.

Rental and Taxes

Hello, Ms. Lank: I used to read your column in the paper in Syracuse, New York, in the 1970s, and in Miami in the 80s and 90s. I've read it in Jacksonville since 2003.

We still own our house up north. We dealt with it as a rental for years, when we had family up there to look after it. We are not renting it now, and I am fixing it up to sell. There are two things I'd like to mention with regard to selling it and taxes:

I pay full property tax on that rental because I'm not an occupant of the house. Prospective buyers should know that as occupants, they could qualify for a state discount.

I was informed by a friend of the depreciation payback. We paid $25,700 in 1974, and the house has been fully depreciated. I will have to pay income tax on that portion of the sale at my normal tax rate (which is high because I am 68; I draw Social Security; and I still work). I don't think a lot of landlords are aware of that.

I'll continue to look forward to your column here. There aren't many AOL

email users like us, but it's been good for years, so why change? — G. T.

Answer: First off, when real estate is on the market, the true tax figure will be provided to prospective buyers. You can be sure that they — and the real estate broker(s) involved — are used to figuring in any available discounts.

As for the recapture of the artificial expense you deducted over the years for the supposed depreciation of your rental property, you saved more valuable dollars in income tax years ago and will be recapturing it — giving it back — with cheaper dollars in the future. Meanwhile, you had the use of those saved dollars. In addition, it's possible not all of it will be taxed at your top rate. It's complicated; get professional help with your tax return for the year when you sell.

And, as for AOL, yes, I've been using it since it was one of the first servers in the mid-1980s. And I do seem to hear from my older readers through my AOL address. Before the last election, I saw a report of campaign contributions analyzed by internet server, and the largest donations came from AOL users — all of us old folks!

Contact Edith Lank at www.askedith.com, at [email protected] or at 240 Hemingway Drive, Rochester NY 14620.

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