After the passing away of a loved one, making difficult decisions regarding inherited property can be overwhelming and stressful. You might be left with the question of what to do after receiving a piece of real estate. You might also be concerned if you have to pay property taxes on your inherited property. Deciding what to do with the property and whether to sell the inherited property in Florida requires a lot of research.
Understanding Florida inheritance law is essential once you’ve inherited property.
Before you sell your inherited property in Florida, read the three items below to gain a better understanding of your inherited property and inheritance rights.
1. Understand How You Inherited the Property
Florida inheritance law states that there are three ways to inherit property in Florida:
- By Deed
- By Will
- By Trust
How you inherited the piece of property in Florida will determine the next steps of the process.
Inheriting By Deed
You inherit a house by deed when someone passes away and they reserved a life estate. The person who inherits is called the “remainderman,” which means you jointly own the property with your parent or family member.
Image: Aubrey Odom-Mabey/unsplash
A common misconception is that a surviving spouse inherits by deed in Florida. Under Florida law, when a person dies, the other owners automatically take possession of the property. No other transition is legally necessary.
Property that is inherited by deed in Florida is not subject to a probate proceeding. The death certificate will be recorded and an affidavit filing must happen. If you decide to sell, the process is relatively straightforward and easy.
Inheriting By Will
You inherit a house by will in Florida if your name is the only name on the deed. In order to sell a house that was inherited by will, you must go through the entire probate court process.
Image: Melinda Gimpel/unsplash
In most cases, the house cannot be sold for four to six months after your file probate because you will have to wait for the legal title to clear.
Inheriting By Trust
You inherit a house by trust if the trust agreement states that you, and possibly others, have rights to the home under Florida law. You will still need Florida probate court to clear the title because of Florida homestead property rules. This only applies if there are children under 18 or a surviving spouse.
Image: Cytonn Photography/unsplash
Florida homestead rules state that if minor children or a spouse are present, then the title of that home will have to be cleared through the probate court process. Once the title has been cleared through probate proceedings, you can sell the inherited property through a traditional real estate sale or to a cash buyer.
2. Understand the Probate Process
Before you can sell your inherited property as a Florida resident, the decedent’s entire estate must go through the probate process. Probate is a legal and court-supervised process that identifies and gathers the assets when a Florida resident dies, also referred to as a decedent. In simpler terms, probate is a process where a court determines how to dispense your property after you die. Probate also pays a decedent’s debts and dispenses the decedent’s estate and assets to beneficiaries or family members according to the will.
Image: Melinda Gimpel/unsplash
Depending on how you inherited the property, Florida probate court can be fast, or really slow. In most cases, you cannot sell property unless it has gone through probate. In order to make sure the process is handled legally and quickly, you (as the appointed personal representative) should contact a law firm. Probate law should be handled by a Florida probate lawyer.
Probate proceedings can happen rather quickly if the person has been deceased for more than two years. However, if the person passed away recently, the probate process can be slow because notices must be published for creditors in the newspaper. Creditor claims can take up to four months.
It’s important to note that creditors can dispute homestead status on an inherited house. Probate allows creditors to dispute homestead status or allows them to collect on real estate that is non homesteaded property.
A probate judge is needed to enter an order that declares you as the new owner of the inherited house. With homestead property, you can only sell the property after the probate judge enters the “order determining homestead status of real property.”
The only way to sell an inherited house in Florida is to have a clear and legal title, meaning it has no income tax or creditor claims.
If there are multiple owners of the inherited property, be prepared for the probate process to be long. It might be wise to hire a probate attorney to help guide you through the process.
3. Prepare for the Sale
Before you sell your inherited property, keep in mind that you will have to pay taxes as the inherited property owner after the sale.
Florida Inheritance Law
While Florida does not have an inheritance tax, the federal government does impose estate tax that applies to all Florida residents. An executor or successor trustee is responsible for collecting and paying estate taxes.
Even though Florida does not have inheritance tax, you are still required to file for the following:
- Individual state and federal income tax returns
- Federal estate tax return
- Federal estate/trust income tax return
Income tax does not apply to property that is directly received from an estate or trust. If the deceased’s assets you inherit have increased in value, federal income tax may apply to the proceeds.
Tax complications may arise if the deceased is not a United States citizen or any of the beneficiaries are not citizens. A person who is not a permanent resident of the United States but has property in Florida may have the property taxed upon their death. A surviving spouse who is not a citizen may not be allowed to inherit tax-free.
Image: Charles Deluvio/unsplash
The income from the sale of your inherited property might be considered capital gains and will often require you to pay capital gains tax on your next income tax return. For federal income tax purposes, selling inherited property is the same as if you sell any other kind of investment property. Capital gains tax applies and will be paid on your income taxes the following year.
Estate tax planning has income tax consequences for income taxes owed by Florida residents. Income taxes for inherited assets are reduced to the extent that the gross estate includes assets that have appreciated in value. Inherited assets receive a stepped-up cost basis.
In Florida, this is known as a “step up on basis” rule in property law. This means that instead of inheriting the house at the amount the deceased person paid for the real estate plus capital improvements, you inherit the home at the appraised value of the property on the date of the decedent’s death. This could be a large savings in capital gains tax. Otherwise you could end up owing a lot on your inherited property with state and federal taxes.
What If I Inherited a House With a Mortgage?
When a home has a remaining mortgage and the owner determines to sell, the entire remainder of the loan is due when the house is transferred to the new owner. However, if a home is inherited, through any means, there’s a federal law that allows the inheritor to keep the mortgage.
This law is called the Garn St. Germain Act and applies to inherited homes in Florida. With this law, individuals who inherit a property can continue to make payments on the existing loan while it stays in the original owner’s name.
If you decide to walk away from an inherited property, the mortgage company cannot go after your personal bank accounts. However, it would be in your best interest to hire a probate attorney if you choose this path.
What If Multiple People Inherited the House?
It is not uncommon for more than one person to inherit a property. This can happen when biological children, grandchildren, or siblings inherit a home.
Image: Tyler Nix/unsplash
In Florida, the deceased’s assets are to be taken care of equally by all parties who own a piece of the inherited house. This includes all of the following: debts, income, mortgage, homeowner’s insurance, rental income (if applicable), property taxes, costs needed for repairs, and more. Everyone who owns the inherited property is responsible for these liabilities.
This situation can be tricky when multiple family members are involved in co-owning an inherited property. Under Florida law, all owners get an equal share of the inherited home.
There are many factors to consider before you sell your inherited property in Florida. From paying taxes, to closing costs, to locating a probate lawyer, to finding a real estate agent, it can be tricky. Understanding how you inherited the property in Florida, as well as the probate process can hopefully make the situation less stressful.