Although a thoughtful and generous gift from a loved one, inheriting property can stir up many emotions, blending fond memories with the uncertainty of managing an unexpected asset.
Deciding whether to keep, rent, or sell your inherited property is deeply personal and depends on your financial goals, emotional attachment, market conditions and tax implications. If multiple people inherit a property, things can get even more complicated.
It’s definitely a big decision with plenty to consider. Here’s some guidance on how to think it through and make the right decision for you.
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What is your personal and financial situation?
If you’re struggling financially, you may opt to sell, hands down. If you’d rather have some passive income, you may favor renting. But if you’d like a long-term investment to use later on when you retire, you may decide to rent or keep the property. The key factor is being honest about whether or not nostalgia clouds your judgment. After all, you may be sentimentally tied to the property. So, keeping it for personal use or family legacy might outweigh your financial considerations.
It’s also important to identify if the property has outstanding debts or taxes (e.g., state inheritance taxes in 17 states). If so, selling may be your only option. Finally, managing a rental property requires time, money and effort. If you lack the ability, simply don’t have the time, or live far away, selling or hiring a property manager may be better if you decide to hold onto the property.
What is the property’s condition and potential
If you fear the property may need significant work, like a new roof or HVAC update, and you’re uncertain you can finance the renovations, renting may be out of the question. For example, the average annual maintenance cost for a single-family home in the U.S. varies, but generally falls between $3,000 and $21,400, depending on the home’s age, size, location and condition. Homeguide.com estimates $4,000 to $22,000, with a rule of thumb of 1% to 4% of the home’s value. That equals $3,000 to $12,000 for a $300,000 home.
You might also want to get an appraisal to determine the property’s fair market value (FMV). This will establish your stepped-up basis for tax purposes and give you an estimate of potential sale or rental income. In addition, research local market trends and check rental rates by consulting with a realtor.
Read: Estate Planning: How Does the Basis Step-Up Rule Work?
Compare your three options — keep, rent or sell
If multiple people are inheriting the property, you may have several options to consider. But if you’re willing to talk it out before making a decision, consider the pros and cons of each of your alternatives.
Keep the Property
(Image credit: Getty Images)
Keeping an inherited property makes perfect sense when considering the potential for long-term appreciation, which can significantly boost your retirement nest egg as a hedge against rising costs, such as health care. It can also secure your financial freedom while preserving a family asset for future generations or personal use, like a vacation home, all without the emotional toll of selling a family legacy.
Pros
- Retains your family’s legacy and sentimental value.
- Can serve as a primary residence, vacation home or future retirement property.
- Potential for long-term appreciation in strong markets.
- If used as a primary residence for two of five years before selling, you qualify for a capital gains exclusion — $250,000 single, $500,000 married in 2025.
Cons
- Ongoing costs: property taxes, insurance, maintenance, and utilities (even if vacant).
- Ties up capital that could be invested elsewhere. Keep in mind that stocks historically outperform real estate in some markets.
- May owe estate or inheritance taxes if the estate exceeds federal ($13.99 million in 2025) or state thresholds.
Overall, keeping the property is best if you have an emotional attachment to it. Maybe it’s your parents’ or grandparents’ home and you want to pass it down, says Karla Dennis, Founder/CEO at Karla Dennis & Associates. “Maybe you have plans to use the property for personal use or as a rental, and have the cash to cover any costs, both in the short- and long-term. It can also be a great choice if it’s in a neighborhood that’s growing.”
Rent the Property
(Image credit: Getty Images)
Dennis also mentions that renting it out might be the way to go if the house can make you some money each month. “It’s a smart way to earn income without selling, especially if your family wants to keep it, but no one wants to live there. You will have to pay taxes on the rent, but you can also write off a lot of the costs, like fixing it up or paying for house insurance.
Pros
- The potential to generate passive income to cover expenses and build wealth.
- Preserves the asset for future generations.
- Tax benefits include deductions for mortgage interest, property taxes, depreciation (over 27.5 years) and maintenance.
- Continued high rental demand in 2025 due to elevated home prices, low inventories and high interest rates.
Cons
- Requires property management or manager fees, which can be 8%-12% of rent.
- Risks include unexpected vacancies, bad tenants and repairs.
- Stricter tenant protection laws, like rent control and eviction restrictions, can increase your responsibilities as a landlord.
- Rental income is taxable, although deductions might offset much of it.
If you want passive income and are comfortable with landlord responsibilities, renting can be a great option. Short-term rentals, like Airbnb and Vrbo, may work in your favor depending on the location.
But keep in mind that tenants may not treat your family home with the same love and care. “For many with strong emotional ties to the home, renting could be a dealbreaker, and selling the home could be the better option here,” says Derek Russell Munchow of Augustus Wealth. “For some, selling provides a clean break — offering closure, liquidity, and peace of mind without the ongoing emotional or financial burden of renting.”
Sell the Property
(Image credit: Getty Images)
At times, it may be difficult, but selling is still often the easiest move. “If you need the money, the home needs a lot of work, or the family can’t agree on what to do, then selling is the way to go,” adds Dennis. She goes on to say that tax-wise, you usually won’t owe much because the house is treated like you got it at today’s value, not what it was worth way back when. “And if you sell right away, the taxes are often super low or zero. Just be aware that some states might still tax the sale.”
Pros
- Immediate liquidity to invest, pay off debts or fund personal goals.
- Minimizes capital gains tax due to the stepped-up basis. Selling at or near fair market value incurs little to no tax.
- You can avoid ongoing costs and landlord responsibilities.
- Simplifies the settlement of the estate, especially if multiple heirs are involved.
Cons
- Loses potential future appreciation or rental income.
- Selling costs typically range from about 6-10% of the sale price, including realtor commissions and closing fees.
- Emotional obstacles if you are attached to the property.
- May trigger state inheritance taxes if not exempt.
You may want to sell if you need or want the cash and have no time for property management. Although this can tug on the heartstrings more than renting or keeping the property, sometimes it just doesn’t make financial sense to hang onto something you may never use or enjoy.
Munchow faced this decision firsthand after losing his mother in November 2024. He was the sole beneficiary of the home he grew up in, and says the emotional weight was considerable, and played a much larger role than the financials alone. “Personally,” Munchow confides, “I ended up selling my mother’s home due to the emotional factors, pristine condition of the property, and strong market conditions.”
What are the tax implications?
Once you learn that you’ve inherited a property, you may wonder if you’ll have to pay an inheritance tax. Although inheriting a property doesn’t trigger any automatic tax liability, what you decide to do — move in, rent it, or sell it — will cause you to incur capital gains taxes, property taxes, and possibly other expenses.
Capital Gains Tax: Capital gains taxes are federal taxes you pay on the profits you earn from the sale of an investment — the difference between what was initially paid for the property and what it sells for. Fortunately, you’ll be protected from the majority of capital gains taxes when you inherit a home because of the step-up tax basis. If you sell the property, capital gains above the stepped-up basis are taxed at 15-20% (federal), plus state taxes. You can deduct selling costs to reduce taxable gains. If you rent and then sell, the depreciation of the property will reduce your basis over time, increasing future gains tax. Plan for this when deciding to rent long-term.
Stepped-Up Basis: You’ll benefit from a step-up tax basis when inheriting a property. That means on the date of the inheritance, you’ll inherit the property at the fair market value (FMV), but you’ll only be taxed on any gains between the time you inherit the home and when you sell it. At the time of the decedent’s death, the property’s tax basis is reset to its FMV, reducing capital gains tax if sold immediately. Make sure to document the property’s FMV with an appraisal right away.
Rental Income: If you decide to rent, all rental income is taxable but can be offset by deductions like maintenance and depreciation.
Estate/Inheritance Taxes: The federal estate tax only applies above $13.99 million in 2025. State taxes vary.
Disclaiming Inheritance: If taxes or costs are too high, you can disclaim the property, passing it to the next heir. Be sure to consult an attorney first, as disclaiming an inheritance is irreversible.
Consider market trends
Strong demand in the rental market continues due to high home prices, low inventory in some areas and interest rates that can be a put-off for buyers. Single-family rentals are in demand, and multi-family construction dropped 25% in 2024, limiting supply and supporting growth in the rental market.
If you’re considering selling, keep in mind that the average time to sell a house is 55 days, according to Houzeo. Location, property size, condition, and more can increase the time your property stays on the market. It’s also important to understand that the probate process for inherited property is necessary to legally transfer the property, which can sometimes take up to 18 months. However, that period can be delayed longer if there are multiple heirs and disagreements.
Make the decision
Still not sure what’s best for your personal situation. Run the numbers and weigh your options.
Keep: Calculate annual costs (taxes, insurance, maintenance) vs. potential appreciation of the property.
Rent: Estimate your rental income (net rent minus expenses, including vacancies and management fees) and tax deductions.
Sell: Project net proceeds (sale price minus commissions, fees, and taxes) and compare to all other investments.
Consult a professional. A CPA can clarify tax implications and deductions. An estate attorney can ensure the title is clear and address any probate or tax issues, and answer any questions you may have. A realtor can provide market analysis and rental and sale projections, which may tip the scale one way or another.
Consider other heirs. If multiple heirs are involved, discuss everyone’s preferences. Selling may be simpler if the profits are split equally. And if you’re still unsure, renting temporarily may give you the time you need to take a hard look at management demands and market trends.
Keep, rent or sell?
Ultimately, there’s no one-size-fits-all answer. Dennis acknowledges that a property in a high-demand rental market might be worth keeping or renting, but she also contends that a property in a declining area or requiring major repairs may be better off sold.
Andrew Constantinides, CFP, investment advisor and chief strategist at Neil Jesani Wealth, often tells his clients, “Sometimes the best return isn’t just financial — it’s peace of mind and the ability to sleep well at night. Consider your emotional ties, financial goals, and the property’s economic reality before choosing your path.”
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