Florida Lady Bird Deeds and Capital Gains Tax

The Stepped-Up Basis, With the Numbers Worked Out

For many Florida families, the stepped-up basis is worth more than the probate savings.
Here is how a Lady Bird Deed keeps it.

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Yanitza Schoonover, Florida probate and estate planning attorney
Written and reviewed by Yanitza Schoonover, Florida probate and estate planning attorney The Schoonover Law Firm, P.A. · Updated October 2026

How a Lady Bird Deed Protects the Stepped-Up Basis

Most people choose a Lady Bird Deed to avoid probate. For a family that has owned a Florida home for twenty or thirty years, the larger financial benefit is often something else: the stepped-up basis that can wipe out decades of capital gain when the beneficiaries sell.

The step-up is not a special Lady Bird Deed rule. It comes from the federal tax code’s treatment of property that is included in a person’s estate at death, and a Lady Bird Deed is structured so the home stays in your estate for that purpose while passing outside probate. Get the structure wrong, by deeding the home to your children during life for example, and the step-up is usually lost.

This guide explains the mechanics, walks through an illustrative example with numbers, covers the home sale exclusion if you sell during life, and lists what heirs should do when they sell soon after a death. It is general information, not tax advice.

The short answer

  • Stepped-up basis: property passing under a Lady Bird Deed is generally included in your gross estate, so your beneficiaries’ basis generally becomes its fair market value at your death (IRC § 1014).
  • Why it is included: you keep possession and enjoyment for life and the power to revoke, which brings the property into your estate under IRC § 2036 (and § 2038).
  • Inclusion is not estate tax. The 2026 federal exemption is $15 million per person, so most estates owe no federal estate tax, and Florida has none.
  • Heirs who sell soon after death usually owe little or no capital gains tax, and their gain is automatically long-term.
  • During your life, the Section 121 exclusion of up to $250,000 ($500,000 for a married couple filing jointly) remains available when you sell.
  • A quitclaim to a child generally passes your old carryover basis instead, and can cost the family tens of thousands of dollars.

Basis in Plain Terms

Capital gain is the difference between what you receive when you sell and your basis in the property. For a home you bought, basis generally starts at the purchase price and increases with capital improvements: a new roof, an addition, a remodeled kitchen. Routine repairs do not count.

The longer a family owns a Florida home, the wider the gap between basis and value tends to grow. A house bought in the 1990s for a modest price can be worth several times that today. The gap is the taxable gain that someone will eventually owe tax on, unless the basis is reset.

That reset is what a stepped-up basis does. When property is acquired from a decedent, the recipient’s basis is generally its fair market value at the date of death, not what the decedent paid (26 U.S.C. § 1014(a)). The appreciation during the decedent’s lifetime is never taxed as income. If the value has fallen, the basis steps down instead.

Why a Lady Bird Deed Gets the Step-Up

Section 1014 applies to several categories of property, including property that is required to be included in the decedent’s gross estate for federal estate tax purposes (26 U.S.C. § 1014(b)(9)). A Lady Bird Deed is designed to fall into that category.

Two estate tax provisions bring the property in:

  • IRC § 2036 includes property you transferred while keeping, for life, the possession or enjoyment of it or the right to its income. Under a Lady Bird Deed you keep the life estate: you live there, rent it, or use it as you wish until death.
  • IRC § 2038 includes property you transferred while keeping the power to alter, amend or revoke the transfer. Under a Lady Bird Deed you keep the power to revoke and to sell the entire property.

The same retained powers mean the transfer is incomplete for gift tax purposes when you sign (Treas. Reg. § 25.2511-2(c)). Nothing is given away until death, and at death the full value of the property is in your gross estate, so your beneficiaries generally receive a basis equal to its date-of-death value.

“Included in my estate” does not mean “taxed”

  • The federal estate tax exemption (the basic exclusion amount) is $15 million per person in 2026. Estates below that owe no federal estate tax.
  • For the vast majority of Florida families, inclusion in the gross estate is purely a benefit: it produces the step-up and costs nothing.
  • Florida has no state estate tax and no inheritance tax.

Sources: 26 U.S.C. §§ 1014, 2036 and 2038; Treas. Reg. § 25.2511-2(c); IRS inflation adjustments for 2026.

An Illustrative Example

The numbers below are hypothetical and for illustration only. They are simplified, they are not a prediction of any family’s tax, and actual results depend on facts a tax advisor should review.

A widowed owner bought a Florida home in 1996 for $120,000 and later spent $40,000 on a new roof and an addition, for an adjusted basis of $160,000. At the owner’s death in 2026, the home is appraised at $510,000. Seven months later the two children sell it for $515,000 and pay $33,000 in commission and closing costs, so the amount realized is $482,000.

Illustrative only. Federal long-term capital gains rates of 15% and 20% shown; the 3.8% net investment income tax and the heirs’ own state taxes are not included.
 Passed under a Lady Bird DeedQuitclaimed to the children years earlier
Children’s basis$510,000 (stepped up)$160,000 (carryover)
Amount realized on sale$482,000$482,000
Taxable gainNone$322,000
Each child’s share of the gainNone$161,000
Federal tax per child at 15%$0$24,150
Federal tax per child at 20%$0$32,200
Family total at 15%$0$48,300

In the Lady Bird Deed column, the sale actually shows a small loss on paper, because selling costs pushed the amount realized below the stepped-up basis. Whether any part of that loss is deductible depends on how the heirs used the property after the death, a question for their tax preparer. The point of the example is the right-hand column: the same house, the same sale, and a five-figure tax bill that exists only because of how title was transferred.

A Lady Bird Deed costs a $595 flat fee plus $24.85 in recording costs on a typical deed.

Married Couples: What Happens at the First Death

Most married Florida couples own their home together as tenants by the entirety and sign the Lady Bird Deed together, naming beneficiaries who take after the second death. The basis works in two stages.

At the first death

For property held jointly by spouses, generally half of the value is included in the first spouse’s estate (26 U.S.C. § 2040(b)). That half receives a step-up; the surviving spouse’s half keeps its original basis. Using the earlier numbers as an illustration: if a couple’s basis is $160,000 and the home is worth $400,000 at the first death, the survivor’s new basis is roughly $80,000 (half the original basis) plus $200,000 (half the date-of-death value), or $280,000.

At the second death

The surviving spouse now holds the life estate alone, the full value is included in that spouse’s estate, and the beneficiaries generally receive a full step-up to the value at the second death.

If the survivor sells instead

A surviving spouse who sells within two years after the first spouse’s death, and has not remarried, can generally still use the $500,000 married couple exclusion under Section 121 if the other requirements were met immediately before the death (26 U.S.C. § 121(b)(4)).

Couples who moved from a community property state

Community property can receive a full step-up at the first death (26 U.S.C. § 1014(b)(6)). Florida is not a community property state, but it has adopted the Uniform Disposition of Community Property Rights at Death Act (Fla. Stat. §§ 732.216 to 732.228). Couples who moved here from a state such as California, Texas or Arizona should mention it, because property traced to community funds may be treated differently.

Selling During Your Life: The Section 121 Exclusion

A Lady Bird Deed does not lock you in. You keep the power to sell, and because the transfer to your beneficiaries is incomplete, you remain the owner for income tax purposes. When you sell your principal residence, you can generally exclude up to $250,000 of gain, or $500,000 for a married couple filing jointly, if you owned and used the home as your principal residence for at least two of the five years before the sale (26 U.S.C. § 121).

That raises a planning question older owners sometimes face: sell now, or keep the home so the beneficiaries receive the step-up?

General considerations only. Personal needs, health and care costs should drive the decision, not tax alone.
SituationTax picture
Gain is below your Section 121 limitSelling during life is generally tax-free to you, and the step-up matters less.
Gain exceeds the limitThe excess is taxable if you sell. Holding until death generally erases it through the step-up.
You no longer live thereAfter three years away, the two-of-five-year use test can fail, and the exclusion may be lost on a later sale.
The home is a rental, not your residenceSection 121 generally does not apply; the step-up at death can be especially valuable.

Our guide to selling or refinancing with a Lady Bird Deed covers the practical side of a lifetime sale. Never keep a home you need to sell for care or safety purely to preserve a tax result.

Heirs Selling Soon After a Death

A sale shortly after death is the situation where the step-up does the most work, because there has been little time for the value to change. A few points help heirs get it right.

  • Get a date-of-death appraisal. It documents the stepped-up basis. A sale to an unrelated buyer soon after death is also strong evidence of value.
  • The gain is automatically long-term. Inherited property is treated as held for more than one year, even if the heirs sell a month later (26 U.S.C. § 1223(9)).
  • Selling costs reduce the amount realized. Commissions and closing costs are subtracted before gain is measured.
  • Appreciation after death is taxable. If heirs hold the home for years, the increase after the date of death is their gain.
  • Renting it out first changes things. Depreciation starts from the stepped-up basis, and the home is no longer personal-use property for the heirs.
  • Report the sale. The closing agent typically issues Form 1099-S, and the sale is reported on the heirs’ returns even when no tax is due.
  • Large estates have consistency rules. If a federal estate tax return is required, the heirs’ basis generally must be consistent with the value reported on it (26 U.S.C. § 1014(f)).

The recording and title steps before a sale are in our guide to what happens after the owner dies.

The Quitclaim Contrast: Carryover Basis

When a parent gives a home to a child during life, by quitclaim or any other deed, the child generally takes the parent’s carryover basis (26 U.S.C. § 1015). The gift is complete, the property is not included in the parent’s estate under Section 2036, and Section 1014 does not apply. That is the right-hand column in the example above.

Basis outcomes for common ways a Florida home passes to children. Joint ownership with a child raises its own estate inclusion questions and is fact-specific.
How the home passesChildren’s basis
Lady Bird DeedGenerally stepped up to date-of-death value
Deed reserving a traditional life estateGenerally stepped up (but you lose control)
Revocable living trustGenerally stepped up
Will, through probateGenerally stepped up
Quitclaim or gift deed during lifeCarryover of the parent’s basis

The quitclaim also carries non-tax costs: loss of control, exposure to the child’s creditors and divorce, loss of the homestead exemption in many cases, and the Medicaid look-back. Our guide to the Lady Bird Deed vs. a quitclaim deed covers each one.

Traps and Limits

Situations where the step-up is smaller than families expect, or does not apply.
SituationWhat happens
The “deathbed gift” to a parentIf a child gives property to a parent who dies within one year, and it passes back to that child, the step-up is generally denied (26 U.S.C. § 1014(e)).
The home lost valueBasis steps down to the date-of-death value. There is no built-in loss to inherit.
The deed was revoked or the home sold during lifeNothing passes under the deed. Basis depends on how the replacement asset passes.
The deed is a defective formIf the reservation of powers fails, the transfer may have been a completed gift, with carryover basis.
The property has a mortgageThe step-up reduces gain, not debt. The mortgage is still paid from the sale.
Rental property with past depreciationBasis generally steps up regardless of depreciation the owner claimed. Rentals raise other issues covered in our rental, condo and LLC guide.

Florida Taxes: What Does and Does Not Apply

  • No state income tax on the gain. Florida’s Constitution does not permit a personal income tax on individuals (Art. VII, § 5, Fla. Const.). Heirs who live in another state may owe that state’s income tax on any gain.
  • No Florida estate tax or inheritance tax for current deaths.
  • No documentary stamp tax on the deed itself. In Technical Assistance Advisement 20B4-004 (October 16, 2020), the Florida Department of Revenue concluded that an enhanced life estate deed is not subject to documentary stamp tax, because no present beneficial interest transfers when the deed is signed. A Technical Assistance Advisement binds the Department only as to the taxpayer and facts presented.
  • Property tax is the Florida tax that changes at death. The homestead exemption and Save Our Homes cap generally end on the change of ownership at death, and the home is reassessed as of the following January 1, with or without a Lady Bird Deed.

This is not tax advice

  • This page explains general federal and Florida tax rules as they relate to Lady Bird Deeds. It does not account for your income, other assets, state of residence, or any facts specific to you.
  • Before selling inherited property, or deciding whether to sell during life, confirm the treatment with a CPA or tax attorney.

Related Guides

Each of these covers a decision that affects the basis your beneficiaries receive.

Browse every topic on our Florida Lady Bird Deed guides page.

Protect the Stepped-Up Basis With a Florida Lady Bird Deed

Yanitza Schoonover focuses her practice on probate administration and estate planning for Florida families. She helps Florida homeowners with:

  • Florida Lady Bird Deed drafting, execution and recording
  • Reviewing deeds and quitclaims already signed
  • Coordinating with your CPA on basis questions
  • Formal and summary probate administration


If your home has appreciated over many years, how it passes to your family can matter as much as whether it avoids probate. Schedule a consultation and we will tell you plainly whether a Lady Bird Deed fits.

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Florida Lady Bird Deed attorney Yanitza Schoonover, who explains capital gains and stepped-up basis for Florida homeowners

Yanitza Schoonover

Lady Bird Deed Capital Gains Frequently Asked Questions

Do beneficiaries of a Florida Lady Bird Deed get a stepped-up basis?

Generally yes. Because you keep a life estate and the power to revoke, the property is included in your gross estate at death under sections 2036 and 2038 of the Internal Revenue Code, and property included in the gross estate generally receives a basis equal to its fair market value at the date of death under section 1014. Confirm the treatment with a tax advisor.

Will my estate owe estate tax because the house is included in my estate?

Almost certainly not. Inclusion in the gross estate is what produces the stepped-up basis, but federal estate tax is owed only on estates above the basic exclusion amount, which is $15 million per person in 2026. Florida has no state estate tax and no inheritance tax.

If my children sell the house right after I die, will they owe capital gains tax?

Usually little or none. Their basis is generally the home’s value at your death, so a sale soon afterward at a similar price produces little or no gain, and selling costs reduce it further. Any gain is treated as long-term regardless of how quickly they sell. A date-of-death appraisal helps document the basis.

Can I still use the $250,000 home sale exclusion if I sell during my life?

Generally yes. A Lady Bird Deed is an incomplete transfer, so you remain the owner for income tax purposes. If you owned and used the home as your principal residence for at least two of the five years before the sale, you can generally exclude up to $250,000 of gain, or $500,000 for a married couple filing jointly.

What happens to the basis when the first spouse dies?

For a home owned jointly by spouses, generally half the value is included in the first spouse’s estate, so that half receives a step-up and the survivor’s half keeps its original basis. At the second death, the full value is generally included and the beneficiaries receive a full step-up. Couples who moved from a community property state should mention it, because different rules may apply.

Why do my children lose the step-up if I quitclaim the house to them now?

A quitclaim to a child during life is a completed gift. Gifted property generally keeps the donor’s original basis, called carryover basis, and because you kept nothing, the home is not included in your estate at death. When the child later sells, all the appreciation during your ownership is taxable to them.

Does Florida tax the capital gain when my heirs sell?

No. Florida has no personal income tax. Heirs who live in another state may owe that state’s income tax on any gain, and federal capital gains tax applies to any gain above their stepped-up basis.

Is there a situation where the step-up does not apply?

Yes. If a child gives property to a parent who dies within one year and the property passes back to that child, the step-up is generally denied. The basis also steps down if the home lost value. And if a deed fails to reserve the powers properly, the transfer may have been a completed gift with carryover basis, which is one reason drafting matters.

Is this page tax advice?

No. It explains general federal and Florida rules as they relate to Lady Bird Deeds. Your income, other assets, state of residence and the specific facts of a sale all affect the result. Confirm the treatment with a CPA or tax attorney before relying on it.

More general questions are answered on our Florida Lady Bird Deed FAQ page.

Florida Lady Bird Deed Attorney Serves Homeowners Across Florida

We help homeowners throughout Florida with Lady Bird Deeds and probate avoidance planning. Below are many of the primary Florida markets we serve, but we're not limited to these locations. You can also browse the full Florida Lady Bird Deed city and county directory, or read our Lady Bird Deed guides.

• Boca Raton • Boynton Beach • Bradenton • Cape Coral • Clearwater • Coral Springs • Davie • Daytona Beach • Deerfield Beach • Delray Beach • Doral • Fort Lauderdale • Fort Myers • Hallandale Beach • Hialeah • Hollywood • Homestead • Jacksonville • Kendall • Lauderdale Lakes • Melbourne • Miami • Miami Beach • Miramar • Naples • Ocala • Orlando • Palm Coast • Parkland • Pembroke Pines • Pine Hills • Plantation • Pompano Beach • Port Charlotte • Port Saint Lucie • Saint Petersburg • Sarasota • Spring Hill • Sunrise • Tallahassee • Tampa • Venice • The Villages • West Palm Beach • Weston

Legal and tax disclaimer. This page is general information about federal tax law and Florida law, not legal advice or tax advice, and reading it does not create an attorney-client relationship. Examples are hypothetical and illustrative only. Tax laws, exemption amounts and rates change; consult a CPA or tax attorney about your own situation. Deeds are recorded in the Official Records of the county where the property is located, by the Clerk of the Circuit Court in most counties and by the Records, Taxes & Treasury Division in Broward County. Fees and procedures described were accurate as of October 2026 and should be confirmed with that office and the Florida Department of Revenue.

The Schoonover Law Firm, P.A. · Yanitza Schoonover, Attorney at Law · Licensed in Florida. Attorney advertising.