Does a Lady Bird Deed Get a Step-Up in Basis?

Does a Lady Bird Deed Get a Step-Up in Basis?

Yes, a full one. Whoever takes your Florida home under a lady bird deed receives a basis equal to what the property was worth on the day you died, not what you paid for it. If they sell shortly afterward, there is usually little or no capital gain to tax.

People expect the opposite, because they are used to the idea that keeping control of something is what creates a tax problem. Here it is the reverse. Keeping control is the whole reason the step-up works.

Practice pointer. When a family asks me to compare a lady bird deed against putting a child on the deed now, this is the number I lead with, and it decides it, and it is almost never the number they came in asking about.

How the Step-Up Actually Works

Two provisions do the work together.

First, the home stays in your estate. A lady bird deed is not joint ownership. You keep full ownership until death, along with the right to sell, mortgage or revoke without asking the remainder beneficiaries. Because nothing was given away, the entire value of the home is property in which you had an interest at death and is included in your gross estate under IRC §2033.

Second, being in the estate buys the new basis. IRC §1014(a) provides that the basis of property in the hands of a person acquiring it from a decedent shall be the fair market value of the property at the date of the decedent’s death. IRC §1014(b)(9) brings in property acquired from the decedent by reason of death, form of ownership, or other conditions, where by reason of that the property is required to be included in determining the value of the decedent’s gross estate.

So the estate tax inclusion is not the cost of the technique. It is the mechanism. For the vast majority of Florida families no federal estate tax is due anyway, because the exemption sits far above the value of an ordinary home, so the inclusion costs nothing and the basis adjustment is pure benefit.

Practice pointer. I will not remove a client’s home from their estate to save estate tax unless the estate is actually large enough to owe it. For most households that trade gives up a certain income tax benefit to avoid a tax that was never going to apply.

What Is the Difference Between This and Just Adding My Kids to the Deed?

A common question I hear is, "What is the difference between a lady bird deed and just putting the kids on the deed now?" My answer starts with a number rather than a definition. Both keep the house out of probate. Only one of them keeps the capital gains tax off it. When I run those two figures side by side for a family, the conversation usually ends there, and I have never had anyone choose the lifetime gift once they saw it.

What Happens if You Deed the House Now Instead

The opposite result, and it is permanent. A completed lifetime gift carries your basis over to the person receiving it under IRC §1015. Your children inherit what you paid, adjusted for improvements, rather than what the house is worth.

That is the trap in the advice to just add the kids to the deed. It does avoid probate on that share. It also converts a tax-free inheritance into a taxable one, and nobody finds out until the house is sold, which is usually years later and long past the point where it could have been fixed.

The same warning applies to an irrevocable trust structured as a completed gift. Removing the home from your estate removes the basis adjustment with it.

The Difference in Real Numbers

A Florida home bought in 1995 for $90,000, worth $500,000 when the owner dies in 2026, passing to one adult child who sells it the following month.

The step-up survives because the transfer is incomplete until death, and that same incompleteness is why the deed overrides a will for that property. It is also why the deed cannot be used to defeat a homestead restriction, which is one of the limits set out in the disadvantages page. The cost of getting one drafted is in what a lady bird deed costs.

Both routes avoid probate. Only one of them avoids the gain. The figures are illustrative and the actual tax depends on the child’s bracket, the net investment income tax and any exclusion they personally qualify for, which is a conversation for a tax professional.

Does a Revocable Trust Get the Same Treatment?

Yes, through its own paragraphs of the same statute. IRC §1014(b)(2) covers property transferred by the decedent during life in trust to pay the income to the decedent, with the right reserved at all times before death to revoke the trust. IRC §1014(b)(3) covers the parallel case where what was reserved is the right to make any change in the enjoyment through a power to alter, amend or terminate.

An ordinary Florida revocable living trust falls inside those descriptions. So basis is not the thing that decides between a deed and a trust, and you are free to choose on the grounds that actually differ, which are cost, the number of properties, incapacity planning and what happens to your homestead. Those are compared on lady bird deed against a living trust and, for the house specifically, homestead in a revocable trust.

Married Couples, and the Florida Double Step-Up

A married Florida couple normally gets half. Florida real property held by spouses is presumed to be tenancy by the entireties, and for a qualified joint interest between spouses IRC §2040(b) includes fifty percent of the value in the first spouse’s estate. Half the home gets a new basis at the first death and the survivor keeps their original basis on the other half.

The structure built to change that is Florida’s community property trust, because IRC §1014(b)(6) adjusts the surviving spouse’s one-half share of community property as well as the decedent’s, provided at least half was includible in the decedent’s gross estate. That is the double step-up, and it is one of the few genuinely Florida-specific planning moves in this area. See the Florida community property trust.

Practice pointer. The question I am asked most often about that structure, whether there is a minimum period the home must be held in it before the double step-up is available, is not answered by the statute in the way people hope. Treat the holding period and the facts around the transfer as something to plan deliberately rather than to assume, and do it well before it matters.

What Would Break the Step-Up

• A deed that transfers a present interest. If the instrument conveys something now rather than a remainder taking effect at death, the gift is complete and §1015 carryover applies to what was given.
• Losing the retained power. The enhanced life estate depends on your keeping the right to sell, mortgage or revoke without consent. Drafting that waters that down, or a later agreement with the remainder beneficiaries not to sell, puts the analysis at risk.
• Moving the home into a completed-gift irrevocable trust. That takes the property out of your estate on purpose, and the basis adjustment leaves with it.

One further limit worth naming. For property acquired before the death, IRC §1014(b)(9) reduces the new basis by depreciation, wear and tear, obsolescence, amortization and depletion allowed as deductions before the decedent died, which matters for a rental. And IRC §1014(c) excludes property that is a right to receive income in respect of a decedent under IRC §691 entirely, which is why a retirement account never receives this treatment. See what happens to your IRA when you die.

Frequently Asked Questions

Common Situations

The deed that cost $98,000. A Port Charlotte woman added her two sons to her deed in 2009 on a neighbour’s advice, to keep the house out of probate. She died in 2024 and they sold. Because two thirds of the home had been a completed gift, two thirds of the gain since 1994 was taxable to them. A lady bird deed would have avoided the probate and the gain both, for a few hundred dollars.

The trust that was fine either way. A Venice couple arrived convinced they needed a trust specifically to secure the step-up for their daughter. They did not. The basis result is the same under a lady bird deed, so the decision came down to the fact that they owned a second property in Georgia, which is a real reason for a trust and has nothing to do with basis.

The half nobody expected. A widower in Naples learned after his wife died that only half the home had received a new basis, because Florida entireties property is a qualified joint interest. The other half still carried their 1998 purchase price. Nothing had gone wrong. It is simply what the default does, and it is the reason the community property trust conversation exists.

Sources of Law

• IRC §1014(a) (basis of property acquired from a decedent is fair market value at the date of death), §1014(b)(1) (property acquired by bequest, devise or inheritance), §1014(b)(2) and (b)(3) (property transferred in trust with a reserved right to revoke, or to alter, amend or terminate), §1014(b)(6) (the surviving spouse’s one-half share of community property), §1014(b)(9) (property included in the gross estate by reason of death or form of ownership, reduced by depreciation allowed before death), §1014(c) (income in respect of a decedent excluded). Text from Cornell Law School LII, fetched 2026-06-08.
• IRC §2033 (property in which the decedent had an interest is included in the gross estate). A Florida lady bird deed is not joint ownership; the grantor retains full ownership until death, so the entire value is §2033 property in the gross estate, which is what supports the §1014 adjustment.
• IRC §1015 (carryover basis for property acquired by gift), which is the rule that applies instead when a home is deeded away during life as a completed gift.
• IRC §2040(b) (qualified joint interests between spouses; fifty percent inclusion), read with Fla. Stat. §689.11 (tenancy by the entireties as the Florida default for married couples on real property).
• IRC §691 (income in respect of a decedent), the reason retirement accounts receive no basis adjustment.
• ⚠ This page is general information about federal tax law, not tax advice and not an opinion on your property. The figures in the worked example are illustrative. Actual tax depends on the seller’s bracket, the net investment income tax, depreciation history and any personal exclusion. Confirm with a tax professional before acting. We do not prepare income tax returns.
• Advertised fees are honored for 90 days from the posted date. Government costs are additional and passed through at cost. Fees are not a prediction of outcome.

What I See in These Files

In 14 years of law practice the most expensive advice I see a Florida family receive is usually free and comes from someone who meant well. Add the kids to the deed. It does avoid probate, which is why the advice sounds right to me too until I finish the sentence, and it quietly converts an inheritance that would have carried no tax into one that carries tax on thirty years of appreciation.

I also litigate deeds after they fail, which enhances the practice of drafting deeds, and this particular failure never reaches a courtroom. It surfaces at a closing table years later, when a title company hands the seller a settlement statement and an accountant works out the gain. That is why I price the basis consequence at the consult rather than after, and why I put the two numbers on one page where a client can see them together. Avoid transferring a present interest in a Florida homestead to a child during your lifetime until someone has told you what the basis change will cost them.

Updated on September 14, 2026. Reviewed by Kevin D. Klagge, Esq., Fla. Bar No. 99502. Attorney Kevin Klagge represents families, businesses, and international clients in estate and tax planning, business structuring, and international law, with a focus on Florida legal tools. He litigates estate and business issues in court. General information about Florida law, federal tax rules and our posted fees, not legal or tax advice, and no attorney-client relationship is created. The right instrument depends on your specific facts, which we confirm at a free consult.