You inherited a rental property: how to set the basis and start the books

Inherited versus gifted basis

Publication 551 says the basis of inherited property is generally the fair market value at the date of the person's death. The estate's personal representative can instead choose the alternate valuation date; the details are in the Form 706 instructions. Property you receive as a gift is different: if its value at the time of the gift is at least the giver's adjusted basis, your basis is the giver's adjusted basis, and if the value is lower, your basis for a loss is that lower value.

Split land from building

Only the building is depreciated, not the land. Residential rental property is depreciated over 27.5 years under the rules in Publication 527. Start with the value on the date of death, then split it between land and building using the county tax assessment ratio or an appraisal, the same way a buyer allocates a purchase price. Our guide to allocating purchase price between land and building shows the method.

Example a made-up inherited fourplex is worth $400,000 on the date of death. The county assessment is 20% land and 80% building, so the building is $320,000 and the land $80,000. Divided over 27.5 years, the full-year depreciation is about $11,636, before any first-year mid-month rule your preparer applies.

Open your books at the right date

1. Get the date of death value in writing: an appraisal or a source your preparer accepts.
2. Record the building and land as assets at the split amounts, and put the offset in owner equity, not income.
3. Set up the tenants' security deposits you now hold and the lease terms as of the date you took over.
4. Start rent and expense entries from the date the property became yours.
5. Give your preparer the appraisal and the allocation, because depreciation is calculated from them.

If an estate or trust held the property for a while, ask who reports rent for that period.

Mistakes with inherited rentals

• Using the old owner's cost as the basis for an inherited property. For an inherited property the starting point is the value at death, not the original cost.
• Depreciating the land. Only the building is depreciated.
• Skipping the appraisal. A written value near the date of death is the hardest thing to rebuild later.
• Mixing the estate's income with yours. Rent collected before you took title may belong to the estate, so ask who reports it.
• Losing the tenants' deposits. You take over the duty to return each deposit under your state's rules, so get the amounts and the account they sit in.

When you later sell, your gain or loss is measured against your adjusted basis, which is the starting basis plus improvements minus depreciation. Good records now save a large cleanup then. See our guide to recording the sale of a rental.

How DoorKeeping handles it

DoorKeeping keeps each property in its own set of books, with the opening balances and deposits held. It does not value the property or calculate your basis. DoorKeeping gives no tax advice. Your tax preparer decides how a rule applies to you, and your state may add its own rules.

Sources

1. IRS, Publication 551, Basis of Assets, read Oct 30, 2026
2. IRS, Publication 527, Residential Rental Property, read Oct 30, 2026

Questions

Does an inherited rental keep the original owner's basis?

Generally no. Publication 551 says inherited property's basis is generally its fair market value at the date of death.

What about property given to me as a gift?

Publication 551 says you generally take the giver's adjusted basis, with a lower basis for a loss if the value at the time of the gift was less.

Is land depreciated?

No. Only the building and its improvements are depreciated.