Apollo AdvisingInherited a rental property? What to decide first
Inherited a rental property? How stepped-up basis works, what to handle in the first 90 days, and how heirs compare keeping, selling, and exchanging.
Short answer. Inherited property generally gets a new tax basis equal to its market value on the date of death, which erases most of the built-up gain and the prior owner's depreciation. That makes selling soon after inheriting far less costly in taxes than most heirs expect. Secure and insure the property first, get a date-of-death valuation, then compare keeping, selling, and exchanging.
Stepped-up basis, in plain terms
Normally, your gain on a sale is the sale price minus what you paid, adjusted for depreciation and improvements. For inherited property the starting point generally resets to the market value on the date of death. If a parent bought a rental for $120,000 decades ago and it was worth $380,000 when they died, your basis is generally $380,000. Sell for that and there is little or no gain.
The reset also wipes out depreciation the prior owner took, so there is generally no recapture on it. Any gain after the date of death is treated as long-term, no matter how soon you sell.
Texas is a community property state. When a married owner dies, property held as community property can receive a step-up on both halves, not only the deceased spouse's half. That can matter a great deal for a surviving spouse, so confirm how title was held with an estate attorney or CPA.
The first 90 days
- Insurance. Call the insurer right away. A policy in the deceased owner's name, or on a vacant house, may not cover a loss. Get the estate or the new owners properly insured.
- Tenants. Existing leases generally stay in force. Tell tenants where to send rent, and keep rent and expenses in a separate account.
- A date-of-death valuation. An appraisal close to the date of death documents your new basis. It is far easier to get now than to reconstruct years later.
- Title and authority. Before you can sell or refinance, someone needs legal authority to act, usually through probate or a similar process. An estate attorney can tell you what applies.
- The property itself. Walk it, photograph it, and list deferred repairs. Older inherited rentals often need more work than the rent suggests.
Keep, sell, or exchange
| Option | Works well when | Watch for |
|---|---|---|
| Keep it | The rent covers every cost and the heirs want to own it together, or one heir wants it | Co-owner disagreements, deferred maintenance, the time it takes |
| Sell it | Heirs want cash or do not want to be landlords | Selling costs, repairs needed to sell, timing among several heirs |
| Exchange it | An heir wants to stay in real estate but not this property | With a stepped-up basis there may be little gain to defer, so a 1031 may not be worth the constraints |
| Buy out siblings | One heir wants to keep it | Agreeing on value, financing the buyout |
When several heirs inherit together, most of the friction is about value and fairness, not taxes. A neutral analysis of what the property earns, what it would sell for, and what it needs usually helps more than any argument. See rentals in retirement and estate planning for related decisions.
Where we fit
We help heirs see what the property earns, what it needs, and what each path nets, so the family can decide together. We are not estate attorneys or CPAs, and we will tell you which questions belong with them.
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$199 per hour, billed in 15-minute increments, or $499 for a three-hour block. The first 30 minutes are free.
Free worksheet: hold, sell, or 1031?
The 12 questions Denver works through with every owner deciding whether to keep, sell, or exchange a rental, in a two-page PDF. Plain language, no sales pitch.
Go deeper
Depreciation recapture: the tax most rental sellers forgetWhat recapture is, why it applies even if you never claimed depreciation, and how to estimate it before you list.The 1031 exchange timeline, step by stepThe 45-day and 180-day deadlines, the identification rules, and what to line up before you list.Return on equity: the rental number most owners never checkHow to calculate it, why it drifts down as a property appreciates, and what it does and does not tell you about selling.This page is general education, not legal, tax, investment, insurance, or lending advice. See our disclosures.