Own Luxury Homes®
What to Do When You Inherit a House: The Complete Guide
Inherit a house: order appraisal at date of death first (establishes stepped-up basis — eliminates lifetime capital gains). Reverse mortgage: 30-day lender notice, 6-month decision window. 3 paths: sell (minimal tax), keep (2-of-5 exclusion), rent (income + deferred gains). Own Luxury Homes® 12-Point Agent Integrity Audit™ — specialists in inherited property.
What to Do When You Inherit a House: The First 30 Days and the Three Long-Term Paths
Inheriting a house is simultaneously a financial windfall and a logistical burden. Most pages that rank for "what to do when you inherit a house" are financial sites focused on the stepped-up basis tax treatment. That is critical but incomplete. The pages that explain the time-sensitive steps in the first 30 days are rare. The pages that explain what happens with a reverse mortgage on an inherited home are nearly absent. This page covers both.
The First 30 Days: Time-Sensitive Actions
Several decisions in inherited property have irreversible consequences if delayed. These must happen within 30 days of taking possession:
| Action | Why Time-Sensitive | Consequence of Delay |
|---|---|---|
| Order a professional appraisal dated at date of death | Establishes your stepped-up basis permanently | Without documentation, you may owe tax on the full gain from original purchase price |
| Notify lender if property has a reverse mortgage | Federal law gives heirs 30 days to notify; typically 6 months to decide/sell | Lender can begin foreclosure proceedings if notification is missed |
| Secure property insurance | Standard homeowner’s policies have vacancy exclusions after 30–60 days | Fire, vandalism, or water damage may be uninsured in a vacant inherited home |
| Secure the property physically | An empty home is a target; change locks, check all entry points | Squatter, theft, or liability exposure |
| Determine probate or trust status | Title cannot transfer until probate is closed or trust distribution executed | You cannot sell or refinance until title is clear |
The Stepped-Up Basis: The Most Important Tax Concept
When you inherit a property, your cost basis — the starting value for capital gains calculation — is reset to the property’s fair market value on the date of the previous owner’s death. This is called the stepped-up basis.
Example Without Step-Up
Original purchase: $150,000 in 1995. Value at death in 2026: $750,000. Without step-up, capital gain = $600,000. At 20% long-term rate: $120,000 in taxes.
Example With Step-Up
Your inherited basis: $750,000 (fair market value at date of death). You sell immediately for $750,000. Capital gain: $0. Tax: $0. You sell two years later for $810,000. Capital gain: $60,000. Tax: $9,000–12,000.
The step-up effectively erases all appreciation that occurred during the decedent’s lifetime. It is one of the most valuable tax provisions in real estate. To maximize it, get the appraisal done immediately and keep documentation for 7+ years.
The Three Paths: Sell, Keep, or Rent
| Path | Tax Treatment | Financial Considerations | Best For |
|---|---|---|---|
| Sell quickly (near date of death value) | Minimal capital gains (sells near stepped-up basis) | Clean; converts to cash; lowest tax exposure | Heirs who do not want to manage the property or need the cash |
| Keep as primary residence | If you live in it 2 of 5 years: $250K/$500K cap gains exclusion on later sale | Ongoing costs: taxes, insurance, maintenance | Heir who wants to move in; particularly valuable for high-appreciation markets |
| Rent as investment property | Rental income taxable; depreciation deduction available; cap gains deferred until sale | Generates income; ties up capital; management burden | Heirs who want cash flow and long-term appreciation; good property managers required |
The Reverse Mortgage Situation
If the deceased had a reverse mortgage (Home Equity Conversion Mortgage or HECM), heirs face a specific and time-pressured situation that most inheritance guides do not address. A reverse mortgage becomes due upon the borrower’s death. Here is what heirs need to know:
| Deadline | Required Action | ||||
|---|---|---|---|---|---|
| 30 days after death notification | Notify lender in writing of the death | ||||
| 6 months from lender notification | Heirs must decide: sell the home, refinance to pay off HECM, or deed in lieu | ||||
| Extensions available | Up to two 90-day extensions typically available with documentation of good-faith effort to sell or refinance | ||||
| Non-recourse protection | If home value is less than the HECM balance, heirs owe only the home’s value, not the full loan balance | ||||
| Failing to notify the lender within 30 days can accelerate foreclosure proceedings. | |||||
Multiple Heirs: The Coordination Problem
When a property is inherited by multiple heirs (siblings, children), decisions require agreement among all parties. One heir cannot sell without the others’ consent. Disagreements about whether to sell, keep, or rent are common — and expensive to resolve through the courts. See the dedicated guide to selling an inherited house with multiple heirs.
“The biggest mistake I see with inherited property is delay. Every week the home sits vacant, you are paying taxes, insurance, and maintenance on an asset that could be producing cash or transferred. The stepped-up basis is your friend — but only if you get the appraisal done before the value moves significantly from the date of death. The first 30 days are the most financially consequential of the entire process.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
What is the first thing to do when you inherit a house?
Order a professional appraisal dated at date of death to establish your stepped-up basis. This is the most financially important action and it is time-sensitive. Also: secure insurance, change locks, and notify any reverse mortgage lender within 30 days.
Do you pay capital gains tax on inherited property?
Usually minimal if sold promptly. The stepped-up basis resets your cost basis to fair market value at the date of death. If you sell near that value, capital gains are near zero. Gains accrue only on appreciation after the inheritance date, taxed at long-term rates (0%, 15%, or 20%).
What happens to a reverse mortgage when the owner dies?
Heirs have 30 days to notify the lender, then typically 6 months to decide: sell the property, refinance to pay off the HECM balance, or deed the property to the lender. Extensions of up to two 90-day periods are usually available. The loan is non-recourse — heirs owe only the home’s value, not more than the HECM balance.
Should I sell or keep an inherited house?
Selling quickly (near date of death) minimizes capital gains and eliminates carrying costs. Keeping as a primary residence (2-of-5-year rule) can unlock the $250K/$500K cap gains exclusion later. Renting generates income but creates management burden and deferred tax liability. The right answer depends on your financial situation, the property’s condition, and your capacity to manage.
Own Luxury Homes® — audited specialists in inherited property transactions who explain the tax implications first. 12-Point Agent Integrity Audit™. Find your specialist now ›
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— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)