When you inherit a rental, two separate systems apply. For income tax, your basis is generally the property's fair market value at the date of death under IRC § 1014, and California uses the same basis for property inherited on or after January 1, 1987. For property tax, Prop 19 (effective for transfers on or after February 16, 2021) does not protect a home that is kept as a rental: it is reassessed at its market value as of the date you inherited it.

The short version

  • Income tax basis is generally fair market value at the date of death, or on the alternate valuation date if the estate's personal representative elects it (§ 1014(a); IRS Publication 551).
  • Community property: in California, the surviving spouse's half can also take a new basis if at least half of the community interest is included in the decedent's gross estate (§ 1014(b)(6)).
  • Depreciation on an inherited rental starts from your basis when you place it in service, with land separated out. Section 179 cannot be used for inherited property.
  • Prop 19 lets a child keep a parent's taxable value only if the home was the parent's principal residence and becomes the child's. A rental does not qualify.
  • Deadlines: the BOE-19-P claim is due within 3 years of the death or transfer, or before a transfer to a third party, whichever is earlier, and the homeowners' exemption must be filed within 1 year.

Income tax: the stepped-up basis

Under IRC § 1014(a), the basis of property acquired from a decedent is generally "the fair market value of the property at the date of the decedent's death." IRS Publication 551 lists the possibilities:

  • fair market value at the date of death;
  • fair market value on the alternate valuation date, if the personal representative chooses alternate valuation;
  • special-use value; or
  • the decedent's basis for a conservation-easement exclusion.

Publication 551 adds that if you did not receive a Schedule A reporting the estate tax value, your basis can be determined using the appraised value at the date of death for state inheritance or transmission tax purposes.

Consistent basis reporting. If the estate must file an estate tax return (Form 706), beneficiaries may receive Schedule A (Form 8971), and certain beneficiaries are required to use that value as their initial basis (§ 1014(f)).

The gift-back rule. The step-up does not apply to appreciated property that you or your spouse gave the decedent within 1 year before death (§ 1014(e)).

California follows the same basis. FTB Publication 1001 (2025): "For property inherited on or after January 1, 1987, the California basis and the federal basis are the same." Later depreciation can still create different California and federal figures; see California vs. federal tax rules.

Community property and joint tenancy

How title was held can change how much of the property gets a new basis.

How spouses held titleWhat Publication 551 says about basis
Community property (California is a community property state)When either spouse dies, the total value of the community property, even the survivor's half, generally becomes the basis of the entire property, if at least half the community interest is includible in the decedent's gross estate
Qualified joint interest (joint tenancy with right of survivorship, or tenancy by the entirety)Only half is included in the estate. The survivor's basis is the cost of their own half, reduced by depreciation allowed to them, plus the basis of the inherited half

Publication 551's example: community property with an $80,000 basis and a $100,000 fair market value at death. The survivor's half takes a $50,000 basis, and the heirs' half takes $50,000.

Whether a particular California property was held as community property or as joint tenancy is a title and legal question. Ask an estate attorney or CPA to confirm it from the deed and the estate documents before anyone relies on a basis figure.

Depreciating and later selling an inherited rental

IRS Publications 527 and 946 send inheritance basis questions to Publication 551. Once you have that basis:

  1. Separate land from building. Land is not depreciable, so only the building portion is.
  2. Note the placed-in-service date. The depreciation basis of rental property is "generally its adjusted basis when you place it in service" (Publication 527).
  3. Do not plan on Section 179. Publication 946 says property acquired "by gift or inheritance does not qualify."
  4. Keep the appraisal. Your basis, less depreciation allowed or allowable, sets your gain when you sell.

How the recovery period runs for an heir is a question for your preparer; see rental property depreciation. For what happens at sale, see selling a rental property.

Property tax: Prop 19 and an inherited rental

Prop 19's parent-child rules apply to transfers on or after February 16, 2021. Transfers on or before February 15, 2021 fall under Props 58 and 193. To keep a parent's taxable value:

  • the home must have been the parent's principal residence and must become the child's principal residence; and
  • at least one transferee must file for the homeowners' or disabled veterans' exemption within 1 year of the transfer or death. Filing later applies the exclusion going forward only.

Even then, the protection is capped at the factored base year value plus an adjusted amount. For transfers from February 16, 2025 to February 15, 2027, that amount is $1,044,586 (BOE Letter to Assessors No. 2025/009). Market value above the cap is added.

A rental does not qualify. The BOE says "the transfer of a rental home between parents and children would not qualify for the exclusion." Once a home is no longer your principal residence, it "will receive a new taxable value," based on the fair market value on the date you inherited it, as adjusted. The reassessment brings supplemental bills, which in San Diego County are separate from the annual bill and are not sent to a lender; see California property tax on rental homes.

Filing deadlines (BOE Prop 19 page):

FormDeadline
BOE-19-P, parent-child exclusion claimWithin 3 years from date of death or transfer, or before transfer to a third party, whichever is earlier
BOE-266 (homeowners') or BOE-261-G (disabled veterans') exemptionWithin 1 year from date of death or transfer; after that, the exclusion applies going forward only

Under R&TC § 63.2(f)(1)(B), a claim is also timely within six months after the mailing of a notice of supplemental or escape assessment.

When siblings inherit together. Under Prop 19 the home must become a transferee's principal residence, and at least one transferee must file for the exemption. How the exclusion applies when only one of several heirs moves in, or when one heir buys out the others, is a question to put to the county assessor and a tax professional before you agree on anything. Heirs who keep the home as a shared rental should put in writing who decides on tenants, repairs, reserves and a future sale.

What to do next

  1. Get the date-of-death value in writing. Keep the appraisal, and any Schedule A (Form 8971) you receive.
  2. Find out how title was held (community property, joint tenancy or otherwise) with the estate's attorney.
  3. Decide early whether anyone will live in the home. The 1-year exemption window and the 3-year BOE-19-P window run from the death or transfer.
  4. Budget for the reassessed tax if it stays a rental, using the rental cash flow calculator.
  5. Ask your CPA to set up depreciation from your basis and the placed-in-service date, with land separated.
  6. If you might sell instead, read selling a rental property and talk to your CPA first.

Coronado heirs can also read renting out an inherited Coronado home and taxes on a Coronado rental. If the heirs want to hold the home in an entity, read holding a California rental in an LLC first.

McKee Properties manages rentals from its Coronado office; contact us with questions about your property.

Frequently asked questions

What is my basis in a rental I inherited?

Generally, the fair market value at the date of death, or on the alternate valuation date if the estate's personal representative elects it. If you received Schedule A (Form 8971) from an estate that had to file Form 706, you may be required to use that value. California uses the same basis for property inherited on or after January 1, 1987.

Does the surviving spouse get a new basis on the whole property?

For California community property, Publication 551 says the total value, including the survivor's half, generally becomes the basis of the entire property, if at least half the community interest is includible in the decedent's gross estate. For joint tenancy between spouses, only the decedent's half generally gets a new basis. Which applies depends on how title was held, so confirm it with an attorney.

Will an inherited rental be reassessed for property tax?

Yes, if it is kept as a rental. The BOE says a rental home transferred between parents and children does not qualify for the Prop 19 exclusion, and a home that is not the child's principal residence receives a new taxable value based on its market value on the date of inheritance.

What if I live in the inherited home first and rent it later?

If the home qualified and you filed on time, the exclusion can apply while it is your principal residence. The BOE says that once it is no longer your principal residence, it receives a new taxable value based on its fair market value on the date you inherited it, as adjusted.

How long do I have to file the Prop 19 claim?

The BOE-19-P claim is due within 3 years from the date of death or transfer, or before a transfer to a third party, whichever is earlier. The homeowners' or disabled veterans' exemption must be filed within 1 year; after that, the exclusion applies going forward only.

This is general information, not tax or legal advice. Tax rules change and depend on your facts; talk to a CPA or enrolled agent before acting.

Sources

Verified October 19, 2026.

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