Inheriting a rental property in California makes you a landlord the moment title transfers, exposes the property to a tax reassessment that can sharply raise the annual bill, and resets your cost basis to the fair market value on the date of death. That reset is a real benefit: it shrinks capital gains tax if you sell and increases your depreciation deduction if you keep renting. What you do in the first few months decides how much of that benefit you actually keep.
Getting Title Into Your Name
You cannot collect rent in your own name, refinance, or sell until title is yours. How that happens depends on how the deceased held the property.
If the property sat in a living trust, the successor trustee records a new deed with the county recorder transferring title to you. No court involvement. This usually wraps up in weeks.
If the property was held in the decedent’s name alone with no trust, it almost always goes through probate. California’s small-estate threshold is $184,500, and rental real estate typically blows past it.1California Courts. Guide to Property After Someone Dies Probate validates the will or identifies heirs, settles debts, and authorizes the transfer. Expect six months to well over a year, and expect statutory attorney and executor fees calculated as a percentage of the estate’s appraised value.2California Legislative Information. California Code Probate Code – PROB 10810 On a $1 million estate, those combined statutory fees run roughly $46,000 before any extraordinary fees the court approves.
A third possibility: the decedent may have recorded a revocable transfer-on-death deed, which California allows for residential property with one to four units. If one exists, title passes to you automatically at death. You’ll still record an affidavit of death with the county recorder to update the public record.
Property Tax Reassessment Under Proposition 19
This is where most heirs get caught off guard. A change in ownership triggers reassessment to current fair market value, and if the prior owner bought decades ago, your annual property tax bill can jump by thousands.3California State Board of Equalization. Change in Ownership Resources
Proposition 19, effective February 2021, narrowed the old parent-child exclusion. If you keep the property as a rental, it will be fully reassessed with no exclusion available. The exclusion only applies when you move in and make the property your primary residence.4California State Board of Equalization. Proposition 19
Even then, there are deadlines and a value cap. You must file the homeowners’ exemption within one year of transfer and the exclusion claim within three years of transfer or before you sell, whichever comes first. Miss the one-year window on the homeowners’ exemption and the exclusion applies only going forward from the filing date, not retroactively to the date of death. The cap preserves the parent’s lower assessed value only up to the factored base year value plus $1,044,586 (the inflation-adjusted figure in effect through February 2027).5California State Board of Equalization. BOE Adjusts the Proposition 19 Intergenerational Transfer Exclusion Anything over that cap gets added to your assessed value, so a property with a very low original basis and a very high current value will still see some increase.
The Stepped-Up Basis
Your cost basis for tax purposes resets to the property’s fair market value on the date of death.6Internal Revenue Service. Gifts and Inheritances All the appreciation that built up during the prior owner’s lifetime disappears for tax purposes.
The math makes the point. If your parent bought the property for $150,000 and it’s worth $700,000 at death, your basis is $700,000. Sell it for $720,000 and you owe capital gains tax on only $20,000. Without the step-up, you’d owe tax on $570,000. That’s why selling soon after inheritance is particularly tax-efficient: little time has passed for new appreciation to accumulate.
California does not impose its own estate or inheritance tax, so federal rules govern.
If You Keep It as a Rental
Rental income gets reported on Schedule E of your federal return. The stepped-up basis makes your depreciation deduction significantly more valuable than what the prior owner was claiming.
Residential rental property depreciates over 27.5 years using straight-line.7Internal Revenue Service. Publication 946 – How To Depreciate Property Your depreciable basis is the stepped-up value minus land value (land is never depreciable). Inherit a property appraised at $700,000 with $250,000 in land, and you depreciate $450,000 over 27.5 years, roughly $16,364 a year offsetting rental income. The clock starts fresh at the date of death regardless of what the prior owner already claimed. Get a defensible appraisal promptly, because you’ll need a solid land-versus-building allocation.
Rental activity may also qualify for the Section 199A deduction of up to 20% of net rental income, either through the IRS safe harbor (which requires 250 hours of rental services per year and contemporaneous recordkeeping) or by otherwise rising to the level of a trade or business.8Internal Revenue Service. IRS Finalizes Safe Harbor to Allow Rental Real Estate to Qualify as a Business for Qualified Business Income Deduction
The Existing Mortgage
Federal law protects you from a due-on-sale clause when you inherit. The Garn-St. Germain Act bars lenders from accelerating a loan on a transfer caused by the borrower’s death or a transfer to a relative on the borrower’s death, for residential property with fewer than five units.9Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions You can continue payments on existing terms without reunderwriting.
Contact the servicer early. Send the death certificate and the document proving your ownership (trust certificate, court order, or recorded deed) and ask what else they need. The lender has to let you keep paying; it isn’t required to put your name on the note itself. If the rate is below market and the balance is manageable, keeping the loan usually makes sense. Refinancing is available if the terms are poor or you want to pull equity out, but you’ll qualify on your own credit and income.
Taking Over the Tenancy
If the unit is tenanted, you step into the prior owner’s shoes the moment title transfers. The existing lease binds you: rent amount, duration, special terms, all of it. You can’t raise the rent, change rules, or end the tenancy just because ownership changed.
California’s Tenant Protection Act (AB 1482) applies to most residential rentals built more than 15 years ago. It caps annual rent increases at 5% plus local CPI, or 10%, whichever is lower, and requires just cause for eviction once a tenant has been in place at least 12 months.10California Department of Justice. The Tenant Protection Act – Your Obligations as a Landlord or Property Manager The act is set to expire January 1, 2030.11California Legislative Information. AB 1482 Tenant Protection Act of 2019 Cities like San Francisco, Los Angeles, Oakland, and Berkeley layer stricter local rent ordinances on top. Check with the local rent board early.
The Security Deposit
California law requires the deposit to be transferred to the new owner within a reasonable time, with written notice to each tenant stating the amount, any claims against it, and your name, address, and phone number.12California Legislative Information. California Code Civil Code – CIV 1950.5 If you’re administering the estate yourself, make this happen. Once the deposit is in your hands, you’re fully responsible for it.
Deposits are currently capped at one month’s rent for most landlords. A narrow exception allows up to two months if you’re a natural person (or an LLC whose members are all natural persons) who owns no more than two rental properties totaling four or fewer units. If the prior owner collected a larger deposit under rules in effect before July 1, 2024, you generally don’t need to refund the difference mid-tenancy, but a California landlord-tenant attorney can confirm.
Habitability
You must keep the property livable. State law sets minimum standards covering working plumbing, heating, weatherproofing, and electrical systems.13California Legislative Information. California Code Civil Code 1941.1 – Untenantable Dwelling Walk the property as soon as you can. Deferred maintenance the prior owner left behind becomes your liability, exposing you to rent withholding, repair-and-deduct remedies, and lawsuits.
If You Want to Sell
Selling soon after inheritance is the cleanest exit, especially if you don’t want to be a landlord or the property needs work. The stepped-up basis means little or no capital gains tax if you sell near the date of death. You still have to honor the existing lease or negotiate a buyout with the tenant before closing.
If You Want to Move In
Moving in unlocks the Proposition 19 exclusion but requires removing the existing tenant through a legal process. Owner move-in is a no-fault just-cause eviction under the Tenant Protection Act.
You must give proper written notice and pay relocation assistance equal to one month’s rent within 15 calendar days of serving the notice, or waive the final month’s rent instead. The notice has to specify which option you’re using.10California Department of Justice. The Tenant Protection Act – Your Obligations as a Landlord or Property Manager
Under SB 567, you or a qualifying family member must actually move in within 90 days after the tenant vacates and live there as a primary residence for at least 12 continuous months. The notice must name the person moving in and their relationship to you. If a comparable unit on the property is vacant, you cannot pursue an owner move-in eviction. Fail to actually live there and the former tenant can sue for damages and potentially move back in at the original rent.
First Steps in the First Month
Get the property appraised immediately, even before title formally transfers. You need a defensible date-of-death valuation for the stepped-up basis, the depreciation allocation between land and building, and the county assessor’s records. A rough estimate months later creates problems at tax time.
Secure landlord insurance right away. The deceased owner’s policy doesn’t automatically cover you, and a gap while you hold title is an unforced risk. Ask the existing insurer about transfer or get your own policy. Lenders typically require it, and management companies, if you use one, usually charge 8% to 12% of monthly rent.
If the estate collects rental income during probate or trust administration before title transfers to you, the estate may need its own EIN to report that income on a fiduciary return. Once title is in your name, rental income moves to your personal Schedule E.
Introduce yourself to the tenants in writing. Give them your mailing address, a contact number or email for repairs, and instructions for where to send rent. Confirm in the same communication that the security deposit transfer has been documented. Tenants who know who you are and how to reach you are far less likely to withhold rent or file complaints.