Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
Updated August 3, 2026. Quick answer: if you have inherited a rental, you take it at its date-of-death market value, the previous owner’s depreciation recapture does not come with it, and you start a fresh depreciation schedule on the new basis. Selling soon after death often produces very little taxable gain. The hard parts are usually not tax.
What you actually received
IRC 1014(a)(1): basis of inherited property is ‘the fair market value of the property at the date of the decedent’s death.’ IRC 1250(d)(2): ‘Except as provided in section 691 (relating to income in respect of a decedent), subsection (a) shall not apply to a transfer at death.’ IRS Pub. 527: residential rental property is depreciated over ‘27.5 years.’
— IRC 1014(a)(1); IRC 1250(d)(2); IRS Pub. 551 ‘Inherited Property’; IRS Pub. 527 (MACRS GDS recovery period, residential rental property)
Two things follow. First, the accumulated tax position is gone. Decades of depreciation the previous owner took — or could have taken — does not transfer to you. Second, your basis is the date-of-death value, so if you sell shortly afterwards the gain is measured from that value and is often close to nothing.
If you keep it as a rental, you depreciate the stepped-up basis over 27.5 years — typically much larger annual deductions than the previous owner was taking near the end.
What we could not confirm. The recapture-elimination point (1250(d)(2)) and the FMV step-up (1014(a)(1)) are directly quoted from statute and IRS Pub. 551. The 27.5-year figure is confirmed from Pub. 527 but stated there as the general residential-rental recovery period, not specifically in an inherited-property example. We could not obtain an explicit IRS sentence stating heirs ‘begin a new depreciation schedule’ on inherited property — Pub. 946 was searched for ‘inherit’/’decedent’ and returned no on-point sentence. That heirs start fresh depreciation on the stepped-up basis is inferred from combining Pub. 551 (new basis at death) with Pub. 946/527’s general placed-in-service mechanics, not from one explicit quoted sentence.
Get the date-of-death value documented now
This is the one time-sensitive thing on this page. Your entire tax position rests on the property’s value on a specific past date, and that valuation gets harder and more expensive to establish the longer you wait. A retrospective appraisal is a normal professional service; an estate agent’s recollection three years later is not documentation.
The problems that are not tax
- Siblings who want different things. One wants income, one wants cash, one wants to live in it. This is the most common reason inherited rentals go badly, and no tax rule helps. Buying out siblings has its own tax consequences.
- A tenant in place. You have inherited a contract as well as a building, and you are bound by it. Selling with tenants.
- Out-of-state property. Managing or selling remotely, under another state’s landlord-tenant law, is a real cost that rarely appears in the family conversation.
- The estate is not settled. Until title is clear you may not be able to sell at all. The executor’s role.
Keep it or sell it?
Their reason for keeping it was never your reason.
The tax argument that made keeping it attractive for the previous owner does not apply to you in the same way. They were holding to avoid a large accumulated recapture bill. You do not have one. That means you are free to decide on the merits of the property itself — which is a better position than they were in, and worth recognising rather than inheriting their reasoning along with their building.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide is paid when you submit the form, whether or not you ever hire anyone. The matching service is free to you and there is no obligation to hire anyone.
The Kapitalwise form opens here. You stay on this page.
What happens when you press the button
It requests contact details and phone verification by text. Nothing loads and nothing reaches Kapitalwise until you press the button. Submitting the form does not guarantee an adviser or a match.
Related: why they held it · how the income is taxed.
General information drawn from the Internal Revenue Code, IRS regulations and IRS publications, not legal, tax or financial advice. Federal tax rules change and every figure here is year-labelled with its source named. Landlord-tenant law, transfer taxes and property law are STATE law and differ materially between states; nothing here states the rule for your state. Depreciation, basis and recapture outcomes depend on your own records and prior returns, which we cannot see. We are not a law firm, a tax adviser or a real-estate broker.
The deposit is the tenant’s money being held, not an asset of the estate — what the statute requires when the tenancy ends.
If the property sits in an LLC, or is being moved into one, the mortgage rule is the part usually skipped — what the due-on-sale statute does and does not protect.