Inheriting real estate sounds like a windfall. In practice, it's usually a series of urgent decisions made while grieving, with tax implications, maintenance costs, and family dynamics complicating everything. This checklist walks you through the decision methodically.
Step 1: Understand What You Inherited
☐Get the deed. Confirm how title was held (sole ownership, joint tenancy, tenancy in common, trust).
☐Get a current appraisal or comparative market analysis (CMA) to establish fair market value.
☐Determine the stepped-up basis. When you inherit property, your tax basis is generally the fair market value at the date of death — not what the deceased originally paid. This matters enormously if you sell.
☐Check for liens, mortgages, or encumbrances. Contact the title company or county recorder's office.
☐Check property tax status — are taxes current? Is there a homestead exemption that will change?
☐Verify insurance coverage. If the property is vacant, standard homeowner's insurance may not cover it. You may need vacant property insurance.
☐If co-inherited: who are the other owners and what do they want?
Step 2: Assess the Costs of Keeping It
☐Monthly mortgage payment (if any remaining)
☐Property taxes (check if they'll be reassessed due to ownership change — in some states, like California, they may increase substantially)
☐Homeowner's insurance
☐HOA dues (if applicable)
☐Utilities (even vacant properties need basic utilities to prevent pipe damage)
☐Maintenance and repairs — get an inspection if the property is older
☐Property management fees (if renting)
☐Distance — is the property near you or hours away?
Step 3: The Decision Framework
Evaluate each option honestly:
- +KEEP IT to live in: Only makes sense if you want to live there, can afford the carrying costs, and it doesn't create conflict with co-heirs.
- +KEEP IT as a rental: Requires either hands-on landlord work or 8-10% of rent to a property manager. Calculate whether rental income covers all costs including vacancy and maintenance reserves.
- +SELL IT: Usually the simplest option. The stepped-up basis means you may owe little or no capital gains tax if you sell promptly. Proceeds can be split among heirs clearly.
- +If co-inherited and you disagree: Any co-owner can petition the court for a partition sale. It's expensive and adversarial. Try to negotiate a buyout first.
Step 4: Tax Considerations
- +Stepped-up basis: If the deceased bought the house for $100,000 and it's worth $400,000 at death, your basis is $400,000. Selling for $400,000 = zero capital gains tax.
- +If you keep the property and it appreciates further, you'll owe capital gains on the increase above the stepped-up basis when you eventually sell.
- +If you rent it, you can depreciate the property for tax purposes — but you'll owe depreciation recapture when you sell.
- +Some states reassess property taxes when ownership changes hands. For example, California's Proposition 19 (effective 2021) significantly limits the parent-child exclusion from reassessment — check your state's rules, as property tax treatment of inherited property varies widely.
- +If the estate is large enough to trigger estate tax, the property's value counts toward the taxable estate.
Key point: Do not make this decision without a CPA or tax advisor. The tax implications of inherited real estate can swing tens of thousands of dollars depending on timing and how you use the property.
Disclaimer. This content is for educational purposes only and does not constitute legal advice. Estate laws vary by state and situation. Consult a licensed attorney in your jurisdiction for guidance specific to your circumstances.