You price an inherited LA apartment building the same way you price any income-producing multifamily asset — against recent closed comparable sales in the same submarket, adjusted for building-specific factors. The part that is specific to an inherited building is the tax position: you likely received a stepped-up basis at the decedent's death, which dramatically simplifies the sale economics compared to a long-held owner's position. Understanding the stepped-up basis is the first step. Pricing the building against recent comparables is the second.
When an individual inherits an asset, federal tax law resets the cost basis to the fair market value on the decedent's date of death. For real estate, this is a substantial benefit: the accumulated capital gains that would have been owed if the decedent had sold during their lifetime are effectively eliminated. On an LA apartment building held for thirty or forty years by the prior owner, the unrealized gain could be in the millions. The step-up at death eliminates the federal income tax consequence of that gain for the heirs. A similar reset applies for California income tax purposes. An inherited property is not subject to California capital gains tax on gain accrued before the decedent's death.
Sellers who inherited a building recently often benefit from selling relatively soon after inheriting, for two reasons:
The stepped-up basis is current. Gain between the date of death and the sale is taxable, but if the sale happens soon after inheriting, that gain is small.
Prop 13 basis reset at sale. The new basis for California property tax purposes is typically the fair market value at the time of the change in ownership. This reset happens with or without a sale — it is a function of inheritance, not of the subsequent transaction. For inherited buildings, the sale-versus-hold decision is often simpler than for long-held buildings where the owner is facing substantial embedded gain.
The actual price is determined by recent closed sales of comparable buildings in the same submarket — adjusted for size, age, condition, rent roll quality, and regulatory regime (pre-1978 RSO vs. post-1995 Costa-Hawkins exempt). A broker's opinion of value based on recent closed comparables is the starting point. A formal appraisal may be ordered by the estate for reporting purposes — this gives a date-of-death valuation that also supports the stepped-up basis claim. What does not price an inherited building well: the decedent's recollection of what it was "worth" years ago, the prior owner's informal estimate, online estimation tools, or general industry averages. These produce anchored expectations that rarely align with current market.
Is the building pre-1978 LA City? Then LA City RSO applies, including the December 2025 rewrite effective July 2026. Pricing reflects the regulatory constraint. Post-1995 LA City? Costa-Hawkins exempt. Different pricing trajectory. LA County unincorporated? LA County RSTPO may apply to pre-1995 inventory, and the 2025 tightening matters. Separate city (Glendale, Burbank, Pasadena, Culver City, Santa Monica)? Each has its own regulatory framework, and the pricing reflects that framework. Inherited buildings sometimes come with rent rolls and operational patterns that have not been reviewed in years. Pre-listing compliance review often surfaces issues that an active owner would have caught — and those issues affect the pricing.
Have the property appraised for date-of-death valuation. The estate typically needs this anyway. It establishes the stepped-up basis and provides a starting reference for sale pricing. Review the rent roll, leases, and compliance status. Identify any documentation or compliance gaps. Consult a CPA on the specific tax position. The step-up benefit is substantial but has specific reporting requirements. Have a qualified broker produce a current market valuation based on recent closed comparables. Compare that to the date-of-death appraisal. If the market has moved since the decedent's death, the numbers will differ. Decide on timing based on the tax position, the property's condition, your income needs, and the current market. For many inherited buildings, moving relatively soon after inheritance produces cleaner outcomes than prolonged holding.
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Do I pay capital gains tax on an inherited building I sell?
You pay capital gains only on appreciation between the decedent's date of death and the sale date. The gain accrued during the decedent's lifetime is eliminated through the step-up.
Does Prop 13 protect the low assessed value after I inherit?
In most cases, the inheritance triggers a change in ownership for property tax purposes, and the assessed value resets to fair market value. Specific rules (including the parent-child exclusion under Prop 19) apply in narrow cases.
Should I keep the building as a rental or sell it?
Depends on your income needs, capacity to manage the property, and the specific building. Inherited buildings often come with deferred maintenance and operational issues that first-time rental owners may not want to inherit.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap. This is informational, not tax or legal advice — consult a CPA and estate attorney on specific inheritance and tax matters.
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