Photo of single story single family home in background with a mature tree on the left side and grass lawn and hedges in front with text - Keeping or Selling? How to Decide what to do with an inherited home in the San Fernando Valley

How to Decide Whether to Keep or Sell an Inherited Home in Los Angeles

  • Ken Sisson
  • 09/14/25

So, You've Inherited a Home in Los Angeles: What to Do?

Inheriting a home in the vibrant heart of Los Angeles, whether it’s Studio City, Sherman Oaks, Valley Village, or Toluca Lake, can come with a whirlwind of emotions. You may be remembering fond moments in the home even as practical questions about taxes, upkeep, and financial goals loom large. Should you keep the property, convert it into a rental, or sell it outright?

 

First things first: Create a plan

Before making any decisions, it’s wise to put together a short-term plan. Start by keeping the property in good condition and reflecting on your long-term goals for its use. Establishing a clear strategy early on can help guide you, since real estate, like other investments, requires careful consideration and ongoing commitment.

 

Examine at the pros and cons – carefully

Each choice comes with unique implications, especially given the San Fernando Valley’s dynamic real estate landscape. To note: If you have siblings, it’s important to contact your family estate planner to ensure you are the sole inheritor before making any decisions. If the home has been left to multiple people, be prepared to have discussions about what would be done with the property or arrange a buyout.

 

Here are some pros and cons to consider.

 

Option 1: Living in the inherited home

Pros

· A sense of emotional continuity and comfort as you move into a space filled with personal memories.

· Primary residence perks: potential for reduced taxes or exclusion on capital gains (if you live there for at least two years).

Cons

· Responsibility for all maintenance, insurance, property taxes, and upgrades.

· Lifestyle decisions differ between neighborhoods. When weighing Studio City condos against Sherman Oaks single family homes for rental, condos typically offer lower maintenance and attract professionals seeking urban convenience, while single family homes have higher rents and draw families looking for more space and a quiet suburban atmosphere.

 

Option 2: Renting out the inherited property

Pros

· A steady stream of passive income; that said, inheriting a house can affect your taxes, so be sure to consult with a tax professional.

· Generates a steady stream of passive income, which can help offset ownership costs while building long-term wealth.

 

Cons

· Landlord responsibilities: dealing with tenants, maintenance, vacancies, and potentially rent control issues.

· Over time, depreciation reduces your tax basis and may increase future taxes upon sale (see sidebar).

 

 

Option 3: Selling the Inherited Property

Pros

· Currently, neighborhoods like Studio City, Sherman Oaks, and Toluca Lake are experiencing strong buyer demand, which can result in competitive offers and favorable sale prices for well-located properties.

· Convert the asset into cash, which is ideal if you need liquidity, the home needs costly repairs, or heirs can’t agree.

· Thanks to the step-up in basis, capital gains tax may be minimal if sold near the inherited value.

 

Cons

· You lose any opportunity for future appreciation.

· Letting go of a home with family history can be emotionally tough.

 

Financial Considerations (across all options)

· Step-up in basis: Heirs inherit real estate and its fair market value as of the decedent’s death, not the original purchase price (refer to the sidebar for its impact on all scenarios).

· Rental income vs. selling profit: Evaluate projected rent, tax benefits (like depreciation), and net gain from selling now.

· Carrying costs: Consider property taxes, insurance, utility upkeep, HOA dues, and unexpected repairs.

· Multiple heirs: Joint ownership can create friction. You may want to consider buyouts, partition, or simply selling to divide proceeds cleanly.

 

Practical decision-making framework

Here are some good questions to ask yourself before you make your decision.

· Emotional: Can I personally benefit from living there?

· Financial: Do I need income now, or can I wait for appreciation?

· Management: Am I ready to manage a rental, or would hiring a property manager cut into profits?

· Family: Can I align with siblings or other heirs on one plan?

 

Whatever you decide, it’s crucial to always consult a qualified tax professional and work with a local real estate agent who understands your neighborhood dynamics to tailor your decision.

 

The bottom line

If you’re trying to decide whether to keep or sell an inherited property in Los Angeles, I’d be happy to provide a free property analysis and walk through your options together. As a veteran Los Angeles REALTOR® and Associate Broker with Coldwell Banker Realty in Studio City, I’m committed to helping you distill information to make complicated inheritance issues simple and understandable.

 

Sidebar: Tax Considerations – Understanding the Step-Up in Basis

The step-up basis is powerful, but outcomes hinge on timing, future appreciation, and rental use.

· What it is: Heirs inherit real estate at its fair market value as of the decedent’s death—not the original purchase price.

· Selling quickly: If you sell soon after inheritance, capital gains may be nominal – you’re taxed on any gain from that stepped-up value.

· Keeping the property: Its basis stays fixed at the stepped-up value. Any future appreciation gets taxed when you sell.

· The “Two-Year Myth”: No IRS rule demands sale within two years to retain the stepped-up basis. That confusion comes from the home sale exclusion: surviving spouses, after residing in the home for two years, may exclude up to $500K of gain – but that’s separate.

· Depreciation pitfall: Renting leads to depreciation deductions, which reduce basis – but can trigger depreciation recapture and increase taxable gains when you eventually sell.

 

 

 

Sources:

· What is a step-up in basis? - fidelity.com 

· Investopedia – Step-Up in Basis Definition - investopedia.com

· Investopedia – How Is Cost Basis Calculated for Inherited Assets?- investopedia.com 

· Wikipedia – Stepped-up Basis - en.wikipedia.org

· Kiplinger – Inherited a House? Here’s What to Do With It - kiplinger.com

· Wikipedia – Studio City, Los Angeles - en.wikipedia.org

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