Tax Consequences of Lady Bird Deeds
A lady bird deed in Florida is a simple way to transfer real estate to beneficiaries while keeping full control of the property during your lifetime. It avoids probate and helps with estate planning, but many homeowners wonder about the tax effects.
Property Taxes
If you qualify for Florida’s homestead exemption, a lady bird deed won’t change your property tax benefits. Since ownership doesn’t transfer until death, the property isn’t reassessed for tax purposes while you’re alive. After your passing, the new owner may be able to keep the homestead exemption if they also qualify, helping to keep property taxes low.
Income Taxes
A lady bird deed has no immediate impact on income taxes. You still report property-related income and deductions as usual while you own it. After your death, the beneficiary receives the property with a “stepped-up basis,” meaning its tax basis is adjusted to its market value at that time. This can reduce capital gains taxes if they sell the property later.
Estate and Gift Taxes
Because you maintain control of the property, a lady bird deed is not considered a taxable gift. There is no need to file a gift tax return, and the property stays part of your estate. Federal estate taxes only apply to very large estates, so most Florida homeowners won’t be affected.
Medicaid and Asset Protection
A lady bird deed can help protect your home from Medicaid recovery. Since ownership doesn’t change until after your death, Medicaid cannot count the property as a transferred asset when determining eligibility. This can ensure the property passes to your heirs without being claimed for Medicaid repayment.
Capital Gains Taxes for Beneficiaries
Because of the stepped-up basis, beneficiaries may owe little to no capital gains tax if they sell the property soon after inheriting it. They will only owe tax on the increase in value from the date of inheritance, not from when you originally bought the property. This can save them a significant amount of money compared to a traditional deed transfer.
About the Author
Gideon Alper is a nationally recognized asset protection attorney and a former attorney for the IRS Office of Chief Counsel. He specializes in structuring compliant Cook Islands trusts and Nevis LLCs that withstand federal scrutiny. A graduate of Emory University Law School (J.D. with Honors), Gideon combines 15+ years of private practice with deep insider knowledge of federal tax procedure. He designs strategies that improve protection while maintaining strict adherence to state law and U.S. tax laws. Gideon advises business owners, professionals, and their families on how to legally secure wealth.
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