Selling an Inherited Michigan Rental Property: Special Tax + Tenant Rules
Inheriting a Michigan rental property comes with two pieces of very good news: stepped-up basis under IRC Section 1014 wipes out decades of capital gain and prior depreciation recapture, and Michigan has specific Proposal A uncapping exceptions for certain family transfers.
Stepped-Up Basis: The Biggest Tax Gift
Under IRC Section 1014, an heir’s basis is generally fair market value on the date of death. If your father bought a Lansing duplex in 1985 for $40,000, took $35,000 of depreciation, and died when the property was worth $220,000, your basis resets to $220,000 and the deferred gain plus recapture evaporates.
Establishing the Stepped-Up Basis
Document the date-of-death fair market value with a written appraisal from a Michigan-licensed appraiser, ideally ordered within 90 days of death. The appraisal supports basis on Form 8949 and Schedule D and protects you in audit.
Proposal A Uncapping Exemptions
Several family transfer exemptions exist under MCL 211.27a, including transfers from a decedent to certain relatives. File the Property Transfer Affidavit (Form 2766) carefully and claim the applicable exemption. Rental use can disqualify some residential exemptions, so review with a Michigan property tax attorney.
Probate or Trust Authority to Sell
If the property was held in the decedent’s individual name, it likely flows through probate. The personal representative needs Letters of Authority before signing a listing agreement or deed. If held in a revocable living trust, the successor trustee acts under the trust document without probate.
The Lease Still Runs
Death of the landlord does not terminate the lease. Tenants continue to occupy and pay rent at the same rate. Notify tenants in writing of the death, the new payment address, and the new contact for maintenance.
Cash Sale for Heir Simplicity
Offer Now Michigan works with personal representatives, successor trustees, and out-of-state heirs across Michigan. We close on the timeline probate allows, buy the property as-is with tenants in place. Call (810) 547-1135.