Inheriting a rental is one of the few moments in landlording where the tax code is quietly on your side. The property arrives with a clean slate: a new cost basis pegged to its value the day the previous owner died, and a fresh depreciation schedule that ignores everything they ever deducted. Most heirs do not realize how much that resets, and they spend the first year chasing the wrong numbers, the price the parent paid in 1994, the depreciation already claimed, when none of it carries over.
There are three questions to answer in order, and the answers build on each other: what is my new basis, what happens to the depreciation the previous owner took, and how do I start depreciating it myself. Get the first one documented and the other two fall out of it. The whole thing turns on one number, the fair market value on the date of death, so that is where this starts.
The step-up: your new basis is date-of-death value
When you inherit property, your basis is reset, or stepped up, to its fair market value on the date the previous owner died. This is the rule in Publication 551. It does not matter what they paid, what they owed, or what they had already depreciated. If a duplex was bought for $120,000 decades ago and is worth $400,000 the day its owner dies, your basis is $400,000.
There is one option that can move the date. An executor filing an estate tax return may elect the alternate valuation date, which uses the property's value six months after death instead of the date of death. Most small estates never trigger an estate return, so for the typical heir the relevant figure is the date-of-death value. Either way, you need a defensible number, and the way you defend it is an appraisal.
Get a written appraisal as of the date of death, even if it has to be done months later. A retrospective appraisal from a licensed appraiser is the cleanest substantiation, far better than a Zillow estimate or a tax-assessor figure, both of which the IRS can wave away. That appraisal is the document your entire basis hangs on, so it is worth paying for and worth keeping where you can find it.
Secure the lease, deposit, and insurance
The property's tax basis resets, but the tenancy does not. Find the signed lease, confirm the rent, term, and due date, and identify the security deposit the prior owner was holding. That deposit becomes your liability even if no cash is handed to you separately. Before collecting rent, confirm with the executor or estate attorney who has authority during probate, then tell the tenant in writing where rent should go and that the existing terms remain in place.
Bind a landlord policy as soon as title and authority allow. The prior owner's coverage may not continue after death, and a homeowner policy is not a substitute for coverage on an occupied rental. If you are also deciding whether to form an entity, compare insurance and the equity at risk before moving title. The framework in umbrella insurance versus an LLC is a better starting point than forming one in a hurry.
The previous owner's depreciation recapture dies with them
Here is the part that matters most, and the part the internet gets murky on. The accumulated depreciation the previous owner built up over their years of ownership does not transfer to you. It is gone. Because your basis steps up to date-of-death value, the depreciation that would have triggered recapture had they sold the property is erased outright. You do not inherit their recapture bill.
This is the sharpest difference between inheriting a rental and receiving one as a gift. If a still-living owner deeds you the property while alive, you take their basis and their accumulated depreciation with it, the carryover-basis rule covered in gifting a rental property. Inheritance wipes that slate; a gift hands you the whole history. For an asset that has been depreciated for twenty years, the difference between those two paths can be tens of thousands of dollars in tax.
One caveat to raise with your CPA: if you are in a community property state, the rules around how much of a jointly held property steps up can differ, and that depends on state property law rather than the federal code. Flag it and let them rule on your specific situation.
Starting a fresh 27.5-year schedule
Once your basis is set at date-of-death value, you start a brand-new depreciation schedule as if you had bought the property new. The previous owner's remaining years are irrelevant; you get a full new 27.5-year straight-line recovery period under the residential rules, the same 27.5-year math a fresh buyer would use. The placed-in-service date is when you inherited it and it was available to rent, which is the convention from Publication 527.
Before you can depreciate, you split the stepped-up value between land and building, because land is never depreciated. Re-split it at inheritance using current ratios, not whatever split the previous owner carried. A common approach is the county assessor's land-to- building ratio applied to your new basis, though an appraisal that breaks out land separately is stronger.
Say the date-of-death appraisal values an inherited single-family rental at $400,000, and the assessor's ratio puts land at 25% of value. Your land basis is $100,000 and your building basis is $300,000. You depreciate the $300,000 building straight-line over 27.5 years, roughly $10,909 a year once it is in service for a full year, with a mid-month convention shrinking the first and last years. You can run the first-year figure on the depreciation calculator to see how the partial year lands. That deduction is reported on Form 4562 and flows to Schedule E line 18.
When you eventually sell
The step-up follows you to the sale. Your taxable gain is the sale price minus your stepped-up basis, adjusted down by whatever depreciation you take during your own ownership. The appreciation that happened on the previous owner's watch is never taxed to anyone. You will owe recapture on your own depreciation, the slice you claimed since inheriting, but nothing on theirs. For how this slots into the rest of your landlord return, the rental property taxes guide is the wider map.
One more quiet benefit: inherited property is automatically treated as long-term, so even if you sell within a year of inheriting, the gain gets long-term capital gain rates rather than ordinary rates. The full mechanics of a sale, including how recapture is computed on your years, live in selling a rental property. If you would rather keep the property and defer entirely, that is the 1031 conversation, but for most heirs the step-up has already done the heavy lifting.
Decide whether the property earns its place
A sale soon after inheritance can produce little gain because the basis was just reset, so do not let a tax bill you may not have decide the keep-or-sell question. Run the property as if you were choosing to buy it today. Subtract a real vacancy allowance, management, repairs, and reserves from rent, then compare the return with the equity you could take away in a sale. The cap rate calculator and the guide to when to sell a rental property give the two sides of that decision.
A nearby building with sound tenants and a healthy margin can be a strong hold on a stepped-up basis. A distant property with thin cash flow and overdue work may be better sold while the exit tax is small. The inheritance explains how you acquired it, not why you should keep it.
The number you have to defend is the one to file away first
Everything above rests on a single input you cannot recreate later: the date-of-death fair market value and the appraisal that proves it. Set that record up correctly at the start, with the land-and-building split written down and the appraisal stored, and the new depreciation schedule, the wiped recapture, and the eventual sale all compute off it cleanly. With rents.ai you can set up the inherited property at its stepped-up basis with a clean new MACRS schedule, and the document storage holds the appraisal that substantiates your date-of-death value next to the property it belongs to. It will not tell you what that value is or stand in for the appraiser, and it does not file anything; what it does is keep the basis, the split, and the proof in one place so the number is not a guess three years from now. The lease, insurance, and keep-or-sell work above belongs in the same file so the first year does not split into separate stories.
The primary sources behind all of this are Publication 551 (basis of inherited property), Publication 559 (survivors and beneficiaries), and Publication 527 (residential rental property and placed-in-service rules), with the schedule itself filed on Form 4562. They are dry, but they are the rules every other article is paraphrasing.
A footnote in the register it deserves: these are estimates to organize your year for your CPA, not tax advice. The alternate valuation election, the land-and-building split, community-property step-up rules, and anything involving an estate return have exceptions this guide skips. Bring your CPA the appraisal and a clean basis record and let them make the rulings.