Hello!
Estate planning is a great tool to ensure you minimize the hier(s) tax exposure when inheriting property.
When the owner of a property passes, the person who inherits the property gets what is called a stepped-up basis. That is, the person who inherits the property has a cost in the property equal to the fair market value of the property at the time the owner passes away and they receive title to the property. It is critical for the heir to have an appraisal done within 6 months of receiving the property. Doing so provides a concrete value of the property that will be used for tax purposes no matter what you choose to do with the property (continue to rent or choose to sell). Because the value of the property is usually more than what the decedent paid for the property, adjusted by depreciation in your case of rental property, selling the property after inheriting it usually has a much smaller tax burden than selling the property prior to the owner's passing.
Let us know if you have further questions.
Elizabeth W., EA
