1st mortgage inherited - Posted by Russ, IL

Posted by Ed Copp (OH) on April 06, 2000 at 11:09:56:

RUSS, It is unfortunate, but there are two groups of people who think that a mortgage note is worth the full stated value typed on the note. ONE is the uneducated, and group TWO is the IRS…ED
P.S. Some from both groups may be at the IRS.

1st mortgage inherited - Posted by Russ, IL

Posted by Russ, IL on April 06, 2000 at 08:55:04:

My mother has just inherited a 1st mortgage for 130k that my grandmother had been holding on a house she sold. This is in Ohio by the way if that matters. My question is, will the amount of the inheritance be looked at as 130k or as the total of the payments per year. In other words will she be taxed once on 130k or will she be taxed each year on 12k(total of one year’s pmts) until it is paid off.
Thanks in advance for any help.

Piper is right with one possible caveat. - Posted by RickVesole

Posted by RickVesole on April 06, 2000 at 14:38:02:

Some states have inheritance taxes (many do not), separate from the federal estate tax, and some of those states tax the recipient of the inherited property. It also may depend on what the Will says (if there was a Will). The Will may provide the estate pays all state inheritance taxes, even though the state imposed the tax on the recipient.

You need to find out the answers to these questions from the attorney who is handling the estate. Even though the property is in Ohio, if the decedant was a resident of another state, that state may be the one that governs on whether any tax is due.

Re: 1st mortgage inherited - Posted by JPiper

Posted by JPiper on April 06, 2000 at 12:15:45:


The answer is neither.

Inherited assets are inherited at their value as of the date of death. That value would be the unpaid principal balance on that date.

Your mother would only pay tax on the interest received over the life of the loan. She pays taxes annually on that as it’s received. Taxes won’t be due on the principal portion of the payment.

If your Grandmother’s estate exceeded the estate tax exemption (I beleive this is $600K-$700K) there may be estate taxes due by the estate. This would be calculated during probate…and would be due from the entire estate, not your mother.

Again, there is no tax due by your mother for receiving this mortgage…and there is no tax due for receiving principal repayments.

Simple Interest Vs Compound Interest - Posted by Michael Morrongiello

Posted by Michael Morrongiello on April 06, 2000 at 11:32:32:

Your Mom may wish to explore the possibility of creating cash liquidty for that note.

Monthly payments coming in at a certain interest rate are really SIMPLE interest payments plus a repayment of principal. Those funds may be better put to use elsewhere.

Depending on how long the note has to run and its interest rate, it may be prudent to consider converting the note to cash and then using that cash to earn greater rates of return on those funds than the simple interest payments the note provides.

Michael Morrongiello