Lady Bird Deed Tax Consequences in Florida

A lady bird deed produces favorable tax results across every major category. The deed triggers no gift tax when executed, no documentary stamp tax at recording, no income tax consequences during the owner’s lifetime, and a full stepped-up basis for beneficiaries at death. The property remains in the owner’s gross estate for federal estate tax purposes, but the federal exemption is high enough that this affects very few Florida homeowners.

Stepped-Up Basis and Capital Gains Tax

The most significant tax consequence of a lady bird deed is the stepped-up basis beneficiaries receive when the owner dies. Under IRC § 1014, property included in a decedent’s gross estate receives a new basis equal to fair market value on the date of death. A lady bird deed keeps the property in the owner’s gross estate under IRC § 2036 because the owner retained possession, use, and control during life. Inclusion in the gross estate triggers the basis adjustment.

If the owner purchased a home for $150,000 and it is worth $500,000 at death, the beneficiaries receive the property with a $500,000 basis. A sale at that price produces zero capital gain. Without the stepped-up basis, the beneficiaries would owe capital gains tax on $350,000 of appreciation.

The stepped-up basis is the primary reason practitioners recommend a lady bird deed over a lifetime gift of real estate. A lifetime gift carries forward the donor’s original cost basis to the recipient. If the same owner gifted the $150,000-basis property during life, the recipient would inherit the $150,000 basis and owe capital gains tax on the full $350,000 gain upon sale. At current federal long-term capital gains rates, that difference can represent $50,000 or more in tax savings.

Transfer method	Basis to recipient	Capital gain on $500,000 sale
Lady bird deed (at death)	$500,000 (stepped-up)	$0
Lifetime gift	$150,000 (carryover)	$350,000
Outright sale at fair market value	$500,000 (purchase price)	$0

The stepped-up basis applies regardless of how much the property appreciated during the owner’s lifetime. For long-held Florida homes where decades of appreciation have created substantial unrealized gains, the tax savings can be the single largest financial benefit of using a lady bird deed.

Gift Tax

Executing a lady bird deed does not trigger federal gift tax because the transfer is not a completed gift. The owner retains the power to revoke the deed, change the beneficiaries, sell the property, or mortgage it at any time without the beneficiaries’ consent. Under IRS gift tax rules, a transfer is not complete until the donor has relinquished dominion and control. Because the owner retains unrestricted authority over the property, no taxable gift occurs.

No gift tax return (Form 709) is required when a lady bird deed is executed. The annual gift tax exclusion and lifetime exemption are not affected. This is a meaningful distinction from a traditional life estate deed, where the creation of a vested remainder interest can constitute a completed gift of the remainder value, potentially triggering gift tax reporting obligations.

Documentary Stamp Tax

Florida imposes documentary stamp tax on transfers of real property for consideration, including the assumption of a mortgage. When a lady bird deed is executed, no present transfer of ownership occurs. The owner retains full title and control during life, and the beneficiaries have no present ownership interest. Because there is no transfer of consideration at the time of recording, no documentary stamp tax is due beyond the minimum $0.70 required on every recorded instrument.

This matters most when the property has an outstanding mortgage. If an owner were to transfer property outright by quitclaim deed to a family member, Florida documentary stamp tax would apply to the value of any mortgage assumed by the recipient, at a rate of $0.70 per $100 (or $0.60 per $100 in Miami-Dade County). On a property with a $300,000 mortgage, the documentary stamp tax on an outright transfer would be approximately $2,100. A lady bird deed avoids this cost entirely.

Property Tax and Homestead Exemption

A lady bird deed does not affect the owner’s Florida homestead property tax exemption during the owner’s lifetime. Because ownership does not transfer until death, the property is not reassessed while the owner is alive. The Save Our Homes cap on annual assessment increases (3% or CPI, whichever is less) continues to apply.

After the owner dies and title passes to the beneficiaries, the property may lose its homestead exemption and the Save Our Homes cap unless a beneficiary qualifies for the exemption by establishing permanent residence. If the beneficiary moves into the home and applies for homestead, a new exemption is granted, but the assessment resets to current market value. This reset can result in a significant property tax increase on homes that have been homesteaded for many years with a large gap between assessed and market value.

Florida does offer a portability provision that allows homestead owners to transfer up to $500,000 of their Save Our Homes benefit to a new homestead property. The owner’s accumulated benefit can be passed to a surviving spouse in certain circumstances, but it does not transfer to children or other beneficiaries who inherit the home through a lady bird deed.

Income Tax During the Owner’s Lifetime

A lady bird deed has no effect on the owner’s income tax obligations while the owner is alive. The owner continues to report all rental income, claim all property tax deductions, and deduct mortgage interest on their personal tax return exactly as they would without the deed. The IRS does not treat the execution of a lady bird deed as a taxable event.

If the property is the owner’s primary residence and qualifies for the IRC § 121 exclusion, the owner can still exclude up to $250,000 ($500,000 for married couples filing jointly) of capital gain from the sale of the home. The lady bird deed does not disqualify the property from the primary residence exclusion.

Federal Estate Tax

Property transferred by lady bird deed is included in the owner’s gross estate under IRC § 2036. For the overwhelming majority of Florida homeowners, this has no practical consequence. The federal estate tax exemption is $13.99 million per person in 2025, and Florida imposes no separate state estate or inheritance tax. Only estates exceeding the federal threshold owe estate tax.

For the small number of estates that do exceed the exemption, the lady bird deed does not worsen the estate tax position. The property would be included in the gross estate regardless of whether it passed by lady bird deed, by will, or through a revocable living trust. The inclusion under § 2036 is a consequence of the owner’s retained life estate, not of the deed itself.

Medicaid and Estate Recovery

A lady bird deed does not affect Medicaid eligibility. The property remains the owner’s homestead during life, and Florida homestead is already an exempt asset for Medicaid resource purposes regardless of value.

The primary Medicaid-related benefit is estate recovery avoidance. After a Medicaid recipient dies, Florida’s Medicaid program has a statutory right to recover benefits paid from the decedent’s probate estate. Property that passes through a lady bird deed transfers outside probate and is generally not subject to estate recovery under current Florida law.

The five-year look-back period applies to the remainder interest created by a lady bird deed. If the owner executes the deed and applies for Medicaid within five years, the value of the remainder interest may be treated as an uncompensated transfer, triggering a penalty period during which Medicaid will not cover long-term care costs. The penalty is calculated based on the value of the remainder interest, not the full property value. Owners who anticipate needing Medicaid should plan the timing of the deed accordingly.

Comparison to Other Transfer Methods

Tax consequence	Lady bird deed	Lifetime gift	Traditional life estate	Revocable trust
Stepped-up basis at death	Yes	No (carryover basis)	Partial (life estate portion only)	Yes
Gift tax triggered	No	Potentially yes	Yes (remainder interest)	No
Documentary stamp tax	$0.70 minimum	Tax on consideration/mortgage	Tax on consideration/mortgage	Tax on consideration/mortgage
Homestead exemption during life	Preserved	Lost (if owner no longer on title)	Preserved	Preserved
Included in gross estate	Yes	No (if gift is complete)	Yes (life estate portion)	Yes
Medicaid estate recovery	Avoided (passes outside probate)	Not applicable (already transferred)	Avoided if enhanced powers retained	Avoided (passes outside probate)

The traditional life estate deserves specific attention on stepped-up basis. Under a traditional life estate deed without enhanced powers, the owner irrevocably transfers the remainder interest at execution. The remainder interest is treated as a completed gift, and the beneficiary takes a carryover basis in that interest.

Only the life estate portion (retained by the owner) is included in the gross estate and receives a stepped-up basis. The result is a blended basis that provides less favorable tax treatment than a lady bird deed. This is one of the principal reasons Florida practitioners recommend lady bird deeds over traditional life estate deeds for estate planning purposes.