Selling an Inherited Apartment Building in Los Angeles: What Heirs and Trustees Need to Know
Important note
This article is for general educational purposes only and reflects current California law, IRS rules, and market conditions as of Q2 2026. Tax treatment of inherited real estate, stepped-up basis calculations, probate procedures, and 1031 exchange rules are complex and vary by individual circumstances. Nothing in this article constitutes legal, tax, or financial advice. Consult a qualified estate attorney, CPA, and licensed real estate broker before making any decision.
If you inherited an apartment building in Los Angeles, your tax position is almost certainly better than you think. The stepped-up basis rule resets your cost basis to the building’s fair market value on the date of death. If the original owner paid $400,000 in 1978 for a Koreatown 10-unit that was worth $3.2 million at death, your basis is $3.2 million. Sell it today for $3.4 million and you owe capital gains tax on $200,000, not $3 million.
- Inherited LA apartment buildings receive a stepped-up basis to fair market value on the date of death, eliminating decades of capital gains tax. A building purchased for $400,000 and worth $3.2 million at death resets the cost basis to $3.2 million.
- Trust sales close without probate court involvement. Probate sales require court confirmation and run 9 to 18 months, but the stepped-up basis applies equally to both paths.
- Measure ULA applies to inherited building sales above $5.4 million inside the City of Los Angeles as of July 1, 2026. There is no estate or inheritance exemption. A sale at $5.4 million triggers $216,000 in tax owed at closing.
- A 1031 exchange is available to heirs who want to defer any appreciation that occurred after the date of inheritance. The 45-day identification window starts the moment escrow closes, not after. Missing it collapses the exchange entirely.
The most common and most expensive mistake heirs make is pricing to what the deceased paid rather than what the building earns today. Buyers underwrite income, not history.
If you inherited an apartment building in Los Angeles, the decision to sell, hold, or exchange depends entirely on understanding three numbers: what the building is worth today based on current income and cap rates, what your actual tax exposure is after the stepped-up basis, and what Measure ULA will cost at closing if the sale price crosses the threshold.
The Stepped-Up Basis: What It Actually Changes
The IRS resets your cost basis to the property’s fair market value on the date the owner died. This is not optional and not a planning strategy. It is automatic. The result is that decades of appreciation accumulated by the deceased owner are never taxed to the heirs.
In Los Angeles, where a 10-unit building bought for $400,000 in 1978 commonly sells for $2 million to $4 million today, the stepped-up basis eliminates the capital gains tax on that entire appreciation. The combined federal and California tax on a $3 million gain (20% federal long-term capital gains, 13.3% California, 25% depreciation recapture on a portion) regularly exceeds $1 million. The stepped-up basis eliminates that exposure entirely on historical gains.
One critical requirement: document the date-of-death value with a professional appraiser before listing. The IRS requires a contemporaneous appraisal as evidence of the basis. The cost is $400 to $700. The tax protection is potentially hundreds of thousands of dollars. Do not skip it.
California community property rule: when one spouse dies, both halves of jointly owned property receive the stepped-up basis. The surviving spouse resets the entire cost basis to date-of-death value, not just their half. This advantage does not exist in common-law property states.
Trust Sales vs Probate Sales: The Process Difference
How the building is titled at death determines the sale timeline and process.
Trust Sales
If the building was held in a revocable living trust, the successor trustee manages the sale with full authority and no court involvement. From a buyer’s perspective, the transaction is identical to a standard multifamily sale. The grant deed at closing is signed by the trustee on behalf of the trust. Trust sales close faster, stay private, and are preferred by buyers because title chains are clean.
Before listing, confirm with the estate attorney who drafted the trust that the successor trustee has clear authority to sell and that the trust documents are current. Title problems discovered mid-escrow from unclear authority kill deals.
Probate Sales
Buildings held in the owner’s individual name require California probate. The superior court appoints a personal representative who manages the sale. With Independent Administration of Estates Act authority, the process resembles a trust sale. Without it, every sale goes before a probate judge where competing buyers submit overbids in open court. Total timeline: 9 to 18 months. The stepped-up basis applies regardless of which probate path is taken.
Measure ULA on Inherited Sales
Measure ULA is a City of Los Angeles transfer tax on sales above specified thresholds. As of July 1, 2026, the lower threshold is $5.4 million at 4%, and the upper threshold is $10.9 million at 5.5%. These thresholds adjust annually with CPI each July 1.
There is no estate exemption, inheritance exemption, or heir exemption. If the building is inside City of Los Angeles boundaries and the sale price crosses the threshold, the tax is owed at closing by the seller.
For inherited buildings near the threshold, the pricing decision is a six-figure calculation. A sale at $5.35 million avoids Measure ULA entirely. A sale at $5.45 million triggers $218,000 in tax. Net proceeds at the lower price exceed net proceeds at the higher price after the tax is paid. Measure ULA does not apply to buildings in Beverly Hills, Santa Monica, Glendale, Burbank, West Hollywood, or unincorporated LA County.
The 1031 Exchange Option for Heirs
Heirs who inherit an apartment building and later sell it after accumulating new appreciation above the stepped-up basis use a 1031 exchange to defer that new gain. The stepped-up basis eliminates historical gains. The 1031 defers any gains that accrued after the date of inheritance.
The 45-day identification window starts the moment escrow closes. Identify replacement properties within 45 calendar days. Close on the replacement within 180 calendar days. Missing either deadline collapses the exchange completely and the gain becomes taxable immediately.
For the complete mechanics of 1031 exchanges on multifamily properties, read our 1031 exchange guide for multifamily investors.
For current market context on what your inherited building is worth today, see our 2026 LA multifamily market trends report.
Building Multifamily in LA Is Complicated Enough. Figuring Out Who Will Finance It Shouldn't Be.
Max Berger provides a free written broker price opinion on inherited LA apartment buildings. No obligation. He will tell you what the building is worth at today’s cap rates, what Measure ULA costs at your price point, and what the stepped-up basis means for your specific tax exposure.
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