Her Mother Will Leave Her a $600,000 House and a Tenant Who Has Paid $1,900 a Month on a Handshake Since 2019. The Lease She Can’t Find Will Still Be Binding

Imagine a 59-year-old woman who expects to inherit her mother’s rental house, worth about $600,000. The caveat is that a tenant has lived there since 2019 and has been paying $1,900 a month, but no one can find a written lease, and one may never have existed. This leaves the woman with three questions: can she sell, can she ask the tenant to leave, and what will the house cost her in taxes?

This is one of the most common ways people inherit real estate. A parent ran the property as a casual landlord, kept a long-term tenant, and left the paperwork in her head. Guidance for heirs makes this point again and again. State law may treat someone who paid rent to the deceased owner as a tenant, even without a written lease. Most estate messes trace back to this kind of gap. That is why we put the full cleanup checklist, from beneficiary forms to titling, in a free estate guide.

A Handshake Tenancy Outlives the Landlord

Without a written lease, the arrangement becomes a month-to-month tenancy, and the daughter steps into her mother’s shoes as landlord. The tenant keeps every right he had the day before her mother died.

To end the tenancy, she has to give the notice her state requires, usually 30 to 60 days, though some places require more. In just-cause jurisdictions such as California, Oregon, and New Jersey, a landlord needs a qualifying reason, and some also require relocation payments. These rules vary by state and sometimes by city, so she should check them locally before sending anything. The security deposit also transfers with the property, which means returning it becomes her responsibility.

Stepped-Up Basis Makes the Rent Nearly Tax-Free

Federal law resets her cost basis to the fair market value of the property at the date of the decedent’s death (26 U.S.C. § 1014(a)(1)). Her mother’s original purchase price stops counting. The 2026 estate tax exclusion is $15,000,000, so most estates like this one will never file an estate tax return. When no return is filed, the IRS uses the appraised value as of the date of death. Get that appraisal right away, as it shows her basis.

The new basis also resumes depreciation. Residential rental property is written off over 27.5 years (26 U.S.C. § 168(c)). Land can’t be depreciated, so the deduction applies only to the building. If about $480,000 of the value is the building, she can deduct roughly $17,500 a year. The house brings in $22,800 in rent a year, so after property taxes, insurance, repairs, and depreciation, little or no taxable income remains. In 2026, the 24% bracket starts at $105,700 for a single taxpayer, so for someone in that bracket, every sheltered dollar saves 24 cents of federal tax.

The step-up means selling within about a year produces almost no capital gain. The home-sale exclusion requires two years of ownership and use as a principal residence (26 U.S.C. § 121(a)). She never lived there, so she doesn’t qualify, and with a stepped-up basis, she doesn’t need it.

What the Tenant Costs You Either Way

The tenant drives the sale price and timeline. Investors buy houses with tenants in place, and they typically pay 5% to 10% less. On this house, that’s $30,000 to $60,000. A vacant house appeals to owner-occupants, who pay more. To get there, she has to serve proper notice. She must also collect no rent while the house sits empty, possibly pay relocation money, and accept the legal risk if the tenant contests.

Rushing into a sale doesn’t pay in this market either. Existing home sales ran at a 3.99M annualized pace in September 2026, down 2% from a year earlier. That falls in the range economists consider a soft market, as national prices rose just 2% year over year.

Keep the House and Put the Tenancy in Writing

For most heirs in her position, keeping the house is the best move. Gross rent equals about 4% of the home’s value, and depreciation shelters most of it. That rent hasn’t changed since 2019 and may now be below market, but because the tenancy is month-to-month, she can raise it with proper notice where rent rules allow.

If she does want out and the house is in a just-cause state, sell with the tenant in place, since the investor discount usually costs less than relocation payments, months of lost rent, and a possible legal fight. In other states, a vacant sale only makes sense if the notice period is short and the tenant leaves cooperatively.

What to Do in the First 60 Days

1. Document everything. Get a date-of-death appraisal, gather her mother’s rent records, and confirm how much deposit the tenant paid.
2. Sign a written lease. Make it month-to-month. Reach a written agreement with the tenant that records the rent, the deposit, and who handles which repairs. This protects both sides and clears up the missing-lease problem.
3. Never assume the tenancy ended. It did not end with her mother. Changing the locks or telling the tenant to leave without legal notice is the costliest mistake heirs make. If the property is in a just-cause jurisdiction, pay a landlord-tenant attorney to review any notice before you send it. A defective notice can reset the clock or leave her owing relocation payments.

Contact [email protected] for any questions or corrections.