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 an attorney who specializes in asset protection planning. He graduated with honors from Emory University Law School and has been practicing law for almost 15 years.

Gideon and the Alper Law firm have advised thousands of clients about how to protect their assets from creditors.