When a family inherits a house in Silicon Valley, there’s almost always a moment where someone says, “Maybe we should keep it.” Sometimes one of the kids wants to move in. Sometimes the idea is to rent it out, since it’s paid off and “real estate always goes up here.” Sometimes the family just isn’t ready to let go. All of those instincts are understandable, and sometimes keeping is the right call. But the numbers change a lot the moment a parent dies, mostly because of property taxes, and the decision deserves a clear look. This article runs the numbers the way I do with families, and it’s part of my guide to selling a house in a trust after a death in Santa Clara County.
Key Takeaways
Summary: Keeping an inherited Silicon Valley house as a rental usually means a full property tax reassessment and a small return on a very large asset. Unless a child moves in and uses Prop 19, selling soon after the death with a stepped-up basis is often the cleaner choice for the family.
From my practice: Owning a rental sounds simple until you look at the upkeep. I sold a hillside house that the owners had held for more than 30 years and rented out for the last ten. By the time they called me, the flat roof was leaking under tarps, storms had pushed water into the lower level, and tenants’ cars filled the carport. They decided to sell as-is and roll the proceeds into a 1031 exchange, spent about $3,300 on prep, and got $1,195,000, 99.6% of list.
If you decide to sell, here’s how I work with heirs and families as a Silicon Valley senior real estate specialist.
The Example
To keep this concrete, here is a three-bedroom house in Sunnyvale that Mom and Dad bought decades ago. At the date of death it’s worth $2,000,000, and the parents’ assessed value, after years of Prop 13 increases capped at 2 percent a year, is $250,000. I’m using a total property tax rate of about 1.2 percent, which is in the range for much of Santa Clara County, though your actual rate depends on the address and local bonds.
Option 1: A Child Moves In
If one child makes the house their primary residence within a year and files for the homeowners’ exemption and the parent-child exclusion, Prop 19 lets them keep the parent’s assessed value plus up to $1,044,586 of market value. Anything above that’s added to the assessed value.
| Amount | |
|---|---|
| Market value at death | $2,000,000 |
| Parents’ assessed value | $250,000 |
| Exclusion limit (assessed value plus $1,044,586) | $1,294,586 |
| Amount above the limit, added to assessed value | $705,414 |
| New assessed value | $955,414 |
| Approximate annual property tax at 1.2 percent | About $11,500, versus about $24,000 at full reassessment |
That’s a meaningful savings, but notice that it applies only if the child lives there. If there are three siblings, the child moving in usually has to buy out the others, which I explain in can an heir buy the house from the estate. The same distribution-in-kind approach works in a trust.
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Option 2: Keep It as a Rental
This is the option families romanticize the most. Because the house won’t be a child’s primary residence, Prop 19’s exclusion doesn’t apply, and the house is generally reassessed to its $2,000,000 market value. Here is a rough annual picture.
| Annual item | Estimate |
|---|---|
| Gross rent at about $5,500 a month | $66,000 |
| Property tax at about 1.2 percent of $2,000,000 | ($24,000) |
| Insurance | ($3,500) |
| Maintenance and repairs on an older home | ($8,000) |
| Property management at about 8 percent | ($5,300) |
| Vacancy and turnover, about one month every few years | ($2,000) |
| Approximate net before income tax | $23,200 |
That net is a little over 1 percent of the house’s value each year. The family is betting on appreciation to make up the difference, which has often worked in Silicon Valley over long periods, but it comes with tenant management, repair decisions made by committee, California tenant protection laws, and the reality that three siblings now co-own a business. The numbers here are estimates, and rents vary a lot by neighborhood and condition, so run your own with a CPA or financial advisor before deciding.
Option 3: Sell
If the trust sells the house for about its $2,000,000 date-of-death value, the stepped-up basis means there’s little or no capital gain. After commission and closing costs, the siblings split the net and each decides what to do with their share. Selling also ends the carrying costs, the insurance questions around a vacant house, and the need for siblings to agree on anything further. I explain the tax side in capital gains on selling an inherited house, which applies to trust sales too.
A real example: One estate administrator I worked with lived on the East Coast, and the townhouse she was handling was full of the late owner’s belongings, with no power and walls painted black, maroon and blue. Keeping it would have meant managing all of that from 3,000 miles away. The family chose to sell, spent $29,900 on targeted prep that was paid back from the proceeds, and sold for $490,000 net in 82 days from our first walkthrough, without a second trip to California.
Side by Side
| Child moves in | Rent it out | Sell | |
|---|---|---|---|
| Annual property tax in this example | About $11,500 | About $24,000 | None |
| Capital gains on a sale soon after death | Not applicable | Not applicable | Usually little or none |
| Future gain when eventually sold | Measured from the date-of-death value, and the home sale exclusion may apply after two years | Measured from the date-of-death value, plus depreciation recapture | None |
| Family coordination required | A buyout among siblings | Ongoing, often for years | Ends at closing |
| Best fit | A child who truly wants to live there and can finance a buyout | A family aligned on long-term investing with a clear operating agreement | Most families with several heirs |
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The Step-Up Clock: Why Waiting Can Cost You
When you inherit, the home’s tax basis generally resets to its value on the date of death (IRC §1014). If you sell within a few months, there’s usually little or no capital gain, because the sale price is close to that stepped-up value. If you keep it as a rental for years, every dollar of appreciation after the date of death becomes taxable gain, and depreciation you claim (or could have claimed) gets recaptured when you sell. On a $2 million Silicon Valley home that appreciates 4% a year, five years of renting could add roughly $430,000 of gain that wouldn’t have existed if you’d sold early, before counting depreciation recapture. Renting can still make sense, but it should be a choice you make with that number in front of you.
If You Keep It as a Rental: The Rules You Inherit
Inherited rentals come with California’s Tenant Protection Act. Rent increases are capped at the lower of 5% plus CPI or 10% a year, unless the home qualifies for the single-family exemption and the tenant received the required written exemption notice (Civil Code §1947.12), and once a tenant has been there 12 months you generally need a just cause to end the tenancy. That matters later, because selling a home with a protected tenant in place usually means selling to an investor at a lower price. Also remember that under Prop 19, keeping your parents’ low property tax base requires the child to move in and file for the homeowners’ exemption within one year, which a rental doesn’t do.
When Siblings Disagree: Buyouts and Partition
Most families work it out, but when one heir wants to keep the house and another wants the money, a buyout is the cleanest answer: get an appraisal, agree on the value, and the keeping sibling refinances or pays the others their share. If it can’t be worked out and the heirs hold title together as tenants in common, any co-owner can file a partition action. Since 2023, California’s Partition of Real Property Act (Code of Civil Procedure §874.311 and following) has the court appoint an appraiser, and the co-owners who didn’t ask for the sale get 45 days to buy out the ones who did at the appraised value. Partition is expensive and slow, so I treat it as the last resort it should be, and I wrote about the human side in sibling conflict during a parent’s home sale.
Questions I Ask Families
- Does anyone actually want to live in the house, and can they qualify to buy out the others?
- If you rent it, who handles the 10 p.m. call about a broken water heater?
- What happens when one sibling needs their money in three years and the others don’t want to sell?
- Would you buy this house as an investment today, at this price, if you had not inherited it?
That last question tends to clarify things quickly. For the full trust sale process, go back to my guide to selling a house in a trust after a death in Santa Clara County, and for a deeper look at Prop 19, see my Prop 19 guide for Silicon Valley families.
Sources and Further Reading
- IRS Publication 551, Basis of Assets
- IRS Publication 523, Selling Your Home
- California State Board of Equalization: Proposition 19
Frequently Asked Questions
Does Prop 19 apply if I rent out an inherited house?
No. The parent-child exclusion under Prop 19 generally applies only if the child makes the inherited home their primary residence within one year. A rental is typically reassessed to market value.
How much will property taxes go up on an inherited house in California?
If no exclusion applies, the house is reassessed to its market value at the date of death. On a $2,000,000 Santa Clara County home that can mean roughly $24,000 a year instead of the parents’ much lower bill.
Is it better to sell or rent an inherited house in Silicon Valley?
It depends on the family. Rentals often net only about 1 percent of the home’s value a year after reassessment and expenses, and co-owning with siblings adds complexity. Selling soon after death usually has little capital gains tax because of the stepped-up basis.
Can one sibling live in an inherited house and keep the low property tax?
Under Prop 19, a child who makes the house their primary residence can keep the parent’s assessed value plus up to $1,044,586 of market value, through February 15, 2027. The other siblings usually need to be bought out.
What is the capital gains tax if we sell an inherited house later?
The gain is measured from the date-of-death value. If the house was rented, depreciation taken may be recaptured. If an heir lived there two of the last five years, the home sale exclusion may apply.
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