The three options, side by side
Before anyone decides, it helps to see the three paths next to each other. The table below isn't about numbers — those depend on your house — but about what each choice involves.
| Keep and live in it | Keep and rent it | Sell it | |
|---|---|---|---|
| Cost to hold | Mortgage, property tax, insurance, repairs and utilities — paid by whoever lives there (or shared, by agreement). | Mortgage, property tax, landlord insurance, repairs, and any utilities you cover. Rent may offset some costs; vacancies don't. | Same costs until the sale closes, plus selling costs. After closing, holding costs stop. |
| Prop 19 effect | A child who makes it their principal residence may keep part or all of the parent's assessed value, if they qualify and file on time. | Rentals are generally reassessed to market value as of the date of death. | Reassessment matters less, but property tax is still owed until the sale. |
| Tax effect | No sale, so no capital gain now. Stepped-up basis applies if you sell later. | Rental income is taxable; depreciation and later sale rules apply. Ask a tax professional. | Stepped-up basis often means little or no gain if you sell near the date-of-death value. |
| Work involved | Moving in, upkeep, and (if others inherited too) buying them out or agreeing on terms. | Most work: tenants, repairs, local rent rules, bookkeeping — or hiring a property manager. | Clean-out, preparation and the sale itself, then one-time distribution. |
For the property tax rules, see Prop 19 and property taxes. For income tax on a sale, see taxes when you sell.
Keeping the house and living in it
Many families' first instinct is to keep the home in the family. That can work well when one heir genuinely wants to live there and can afford it. The key questions are whether the holding costs fit that person's budget, whether the house needs major repairs, and whether the property tax will stay close to what the parent paid. Under Proposition 19 (the 2021 law that changed how inherited homes are taxed), that depends on the house becoming the child's principal residence and on filing the right paperwork in time.
If other people inherited too, the heir who stays usually needs to buy them out — which brings us to the multi-heir section below.
Keeping the house and renting it
Renting can look like a way to keep the house and have it pay for itself. In practice, becoming a landlord is a job. You'll need to follow local rent and eviction rules and tenant protections, which vary from city to city. You'll need landlord insurance rather than a regular homeowners policy. Repairs, turnover and the occasional difficult tenant all land on you or on a property manager you pay. And a rental generally doesn't qualify for the Prop 19 parent-child exclusion, so the property tax is usually reassessed to market value.
Before signing a lease, talk with a property manager or a landlord-tenant attorney about the rules where the house is.
Selling the house
Selling is often the simplest option when several heirs are involved, when no one wants to live there, or when holding costs are a strain. It turns the house into money that can be divided cleanly. Thanks to stepped-up basis — a federal tax rule that generally resets the home's tax cost to its value on the date of death — selling near that value may produce little or no taxable gain. A tax professional should confirm that for your situation. Who can sign, and how, is covered in selling an inherited house.
When several heirs inherit together
When brothers, sisters or other relatives inherit a house together, there are three common paths:
- Buyout. One heir buys out the others. This needs a value everyone accepts — usually a professional appraisal — and often a new loan in the buying heir's name.
- Sell and split. Everyone agrees to sell and divide the proceeds according to the will, trust or law.
- Partition. If co-owners can't agree, one can ask a court to order a partition sale. That's a last resort: slow, costly and hard on relationships.
The best protection is to agree early, in writing, and to use a neutral appraisal so no one feels the number was chosen to favor someone.
When an heir is living in the house
It's common for an adult child or other relative to already live in the home. That's understandable — and it's also where many family disagreements start. Talk early about whether they'll pay rent to the estate or trust, who covers taxes, insurance and repairs, and, if the house will be sold, a realistic move-out date. Put it in writing and share it with the executor, administrator or trustee.
How Will can help you decide
Most families find the decision easier once they see two numbers: what the house is likely worth today, and roughly what each heir would net after a sale. Will can prepare a value opinion and a net-proceeds estimate for homes in Southern California, with no obligation to sell. For a quick starting point, try What is the house worth? — then talk with Will for a real opinion of value.