The Accidental Landlord: Inherited or Kept a House to Rent

Not everyone becomes a landlord on purpose. Some people inherit a house from a parent. Others move for a job, a relationship, or a weak sale market and decide to keep the old home and rent it out. The result is the same: you own a rental, but you did not plan for it. This guide covers the first steps, how to decide whether to rent or sell, and the loan, insurance, and tax issues that catch accidental landlords off guard.

First steps

Whatever brought you here, start with the basics:

1. Confirm who owns what. If you inherited, make sure the title has been transferred or the estate process is far enough along that you can legally act. An estate attorney can tell you what authority you have and when.
2. Secure the property. Change or re-key the locks, check for leaks, and make sure utilities are in someone’s name.
3. Keep the insurance active. Do not let coverage lapse during a transition. Tell your insurer about the situation (more on that below).
4. Gather documents. Find the deed, mortgage statements, tax bills, HOA documents, and any warranties.
5. Get a condition check. A professional inspection tells you what needs fixing before anyone lives there.

Decide: rent or sell?

Do not decide on emotion or inertia. Compare the options with real numbers. For renting, estimate market rent (see how to set rental price) and subtract property taxes, insurance, maintenance, vacancy, and any mortgage or management costs. Our guide to rental cash flow and cap rate walks through the math.

If the property needs major repairs, if you live far away, or if the estate has several heirs who disagree, selling may be simpler. If the house is in good shape, in a strong rental area, and the numbers work, renting may make sense. If you are not sure, a short rental period can buy you time, but a lease can complicate a sale, so think about timing.

Mortgage and insurance permission

If there is a mortgage on the property, do not assume you can rent it freely. Many loans on a primary residence include terms about occupancy, and lenders may expect you to live there for a period. Read your loan documents and ask the lender directly what is allowed. Terms differ, so check your lender’s actual terms rather than relying on general rules. If you inherited a mortgaged property, ask the servicer how assumption and payment works in your situation.

Insurance is just as important. A homeowner policy often does not cover a tenant-occupied home the same way, and a vacant home may face its own restrictions. Tell your insurer that the property will be rented or is vacant, and ask for a landlord policy or an endorsement. Failing to tell the insurer could put a claim at risk. See landlord insurance explained.

Also check HOA or condo rules, which sometimes limit rentals or require registration.

Taxes for accidental landlords

Taxes are where accidental landlords most often need professional help. Here are the main ideas. Confirm details with a CPA.

Basis for inherited property. IRS Publication 551 explains that the basis of inherited property is generally its fair market value at the date of the individual’s death, or at the alternate valuation date if the estate’s personal representative elects it, with some exceptions. That is often different from what the original owner paid (often called a “stepped-up” basis when the value has risen), which can matter a lot when you eventually sell and when you figure depreciation. Exceptions include:

• If the estate filed an estate tax return and you received a Schedule A (Form 8971), you may be required to use the value reported there as your starting basis.
• If you or your spouse gave the property to the person who died within one year before their death, and it had gone up in value, your basis is generally the decedent’s adjusted basis instead of the date-of-death value.
• Special rules can apply to community property and to certain farm or business real estate.

Keep an appraisal or other documentation of the value at the date of death. The details are in the “Inherited Property” section of IRS Publication 551.

Depreciation. IRS Publication 527 says you begin to depreciate rental property when you place it in service for the production of income, meaning when it is ready and available for rent (Publication 527). For a home you lived in and then converted to a rental, the basis for depreciation is the lesser of your adjusted basis or the fair market value on the date you converted it, and land is not depreciable (Publication 551, “Property Changed to Business or Rental Use”). That means the starting figure is not simply what you paid, so ask a CPA to help you calculate it. See rental property depreciation explained.

Income and deductions. Rental income is reported, and ordinary expenses are generally deductible. Keep good records from day one. See landlord tax deductions and rental record keeping.

Selling later. Gain on a sale may be taxable, and depreciation can affect it. If you kept your former home, timing matters: the home sale exclusion ($250,000, or $500,000 for many married couples filing jointly) generally requires that you owned and lived in the home as your main home for at least 2 of the 5 years before the sale, so the window can close about three years after you move out. Even when the exclusion applies, you cannot exclude gain equal to depreciation allowed or allowable after May 6, 1997, and other limits can apply (IRS Publication 523). Read selling a rental and capital gains before you plan an exit, and talk to a tax professional about your specific facts.

Licensing and local rules

Many cities and counties require a rental license, registration, or inspection, and fees and rules vary. Some cities also have tenant protection rules or limits on rent increases. Check with your city or county housing office before you advertise. Do not assume your old neighborhood’s rules match another city’s.

Set it up properly

Treat the house like a business even if you did not plan to:

• Use a written lease that fits your state. See lease clauses every landlord needs.
• Screen applicants consistently. See how to screen tenants.
• Handle the deposit correctly. See security deposit rules for landlords.
• If you live far away, consider hiring a property manager.
• Keep rental money separate from personal funds.

Action step

This week, make three calls: your insurer, your lender (if there is a mortgage), and your city or county rental office. Write down what each says, then decide whether renting or selling fits your situation. If you inherited the property, add a fourth call to a CPA about basis and depreciation.

Related guides

• How to become a landlord
• First-time landlord checklist
• Rental property depreciation explained
• Selling a rental and capital gains
• Landlord insurance explained