Does Florida Have an Estate Tax or Inheritance Tax?
May 27, 2026
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June 17, 2026Last reviewed: June 12, 2026 · Reviewed by Alexis Bucelo Diaz, Esq.
When someone dies owning appreciated property, their heirs often face a critical tax question before selling anything: what cost basis do they use? Under IRC §1014, the answer is usually the property’s fair market value on the date of death, not what the original owner paid. This step-up in basis at death eliminates capital gains tax on all appreciation that accumulated during the decedent’s lifetime. For Florida families with appreciated real estate, investment accounts, or business interests, understanding how the step-up in basis rules interact with trust structures is one of the most consequential parts of estate planning.
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If you have appreciated real estate, an investment portfolio, or a trust in Florida, the structure of your estate plan directly affects what your heirs receive after taxes. Schedule a Zoom consultation or schedule a phone call with Bucelo Diaz Law. You can also call us at 954.399.1910.
What Is the Step-Up in Basis Rule? (IRC §1014)
The federal step-up in basis rule is found in IRC §1014 and implemented through Treasury Regulations §§1.1014-1 through 1.1014-3. When you inherit property, your basis is generally reset to the property’s fair market value on the date of the decedent’s death. This is called a “basis adjustment at death” or stepped-up basis.
A concrete example illustrates why this matters. Suppose a parent purchased stock for $50,000 thirty years ago, and at the time of death the shares are worth $300,000. If the heir sells the shares the following month, the heir’s capital gain is calculated from the $300,000 stepped-up basis, not the original $50,000. The $250,000 of appreciation that occurred during the parent’s lifetime is never taxed as capital gains. The same principle applies to inherited real estate, taxable brokerage accounts, and many other asset types.
One important boundary: the step-up applies to inherited property, not to property received as a gift during the donor’s lifetime. Gifted property carries over the donor’s original basis under IRC §1015. The carryover basis rules are addressed in the dedicated section below. The step-up rule operates uniformly under federal law; Florida has no separate state capital gains tax rule that overrides or modifies IRC §1014.
Does a Revocable Trust Get a Step-Up in Basis?
Yes. Assets held in a revocable living trust in Florida at the time of the grantor’s death receive a full stepped-up basis under IRC §1014. The reason comes directly from the trust’s legal structure.
A revocable trust is a grantor trust under IRC §§671-679. Because the grantor retains the power to revoke the trust and change its terms at any time, the trust assets remain part of the grantor’s taxable estate under IRC §2038. Estate inclusion is the trigger for the step-up: when assets are in the gross estate, IRC §1014 resets the heir’s basis to date-of-death fair market value.
In practical terms, a family that places their home or investment accounts in a revocable trust to avoid probate does not give up the step-up in basis. The assets pass to the named beneficiaries through the trust, outside probate, with the same stepped-up basis they would have received through a will or direct inheritance. This is one of the reasons revocable trusts remain the foundational planning tool for most Florida families with appreciated assets.
The same principle applies to a Florida lady bird deed. The property remains in the owner’s estate until death, so the beneficiary generally receives a stepped-up basis while the home still passes outside probate.
Does an Irrevocable Trust Get a Step-Up in Basis?
Generally, no. When a grantor transfers assets to an irrevocable living trust in Florida and relinquishes control, those assets are typically removed from the grantor’s taxable estate. Under IRC §2036 and IRC §2038, assets are includible in the estate only if the grantor retains certain rights or powers. A properly structured irrevocable trust is designed so that the grantor retains neither, removing the assets from the estate and eliminating the estate tax exposure on their future appreciation.
The consequence is that estate exclusion cuts both ways. Assets outside the estate avoid estate tax, but they also fall outside the scope of IRC §1014. The heir inherits the trust assets with the grantor’s original cost basis, not the date-of-death value.
The IRS Confirmed This in Revenue Ruling 2023-2
Prior to 2023, some planners argued that certain irrevocable grantor trusts (trusts that are treated as owned by the grantor for income tax purposes under IRC §§671-679, but whose assets are not included in the grantor’s gross estate for estate tax purposes) might still qualify for the step-up. IRS Revenue Ruling 2023-2, published in the April 17, 2023 Internal Revenue Bulletin, resolved this question directly.
The ruling holds that assets in an irrevocable grantor trust are “not acquired or passed from a decedent” within the meaning of IRC §1014 when those assets are not includible in the grantor’s gross estate. As a result, the basis of those assets is not adjusted at the grantor’s death. As of the drafting date of this page (May 27, 2026), Rev. Rul. 2023-2 has not been revoked, superseded, or modified by subsequent IRS guidance.
The Estate-Inclusion Exception
Not every irrevocable trust removes assets from the estate. Certain irrevocable structures are intentionally designed to keep assets in the gross estate. Examples include Qualified Personal Residence Trusts (QPRTs) where the grantor’s retained term interest may trigger IRC §2036, and Grantor Retained Annuity Trusts (GRATs) where a portion of the transferred value may remain in the estate if the grantor dies during the annuity term. For those trusts, the includible portion of the assets does receive a step-up in basis under IRC §1014.
Whether a specific irrevocable trust structure keeps assets in or out of the estate is a fact-specific analysis based on the trust document and the IRC provisions that apply to it. This is not a determination that can be made from general information alone.
The Planning Trade-Off
The irrevocable trust step-up question sits at the center of a genuine planning tension. Irrevocable trusts can provide asset protection, remove appreciating assets from the taxable estate, and reduce estate tax liability. The cost of that protection, for assets that have already appreciated significantly, is the loss of the step-up in basis for the trust beneficiaries.
Estate planning attorneys and CPAs typically weigh the projected capital gains tax cost against the projected estate tax savings when evaluating whether an irrevocable trust makes sense for a specific portfolio of assets. Assets with modest built-in gains may be better candidates for irrevocable trust funding than assets with decades of appreciation. This is one reason why the asset-selection decision for an irrevocable trust is as important as the trust drafting itself.
Questions About Your Trust Structure?
Understanding whether your current trust structure preserves the step-up benefit for your heirs is a specific question that requires reviewing your documents. We offer a free 30-minute initial consultation by phone or Zoom. Schedule online or call 954.399.1910.
Joint Property and the Spousal Step-Up in Florida
Florida is a common-law property state, not one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). That distinction matters significantly for the step-up in basis when a spouse dies.
In a common-law state like Florida, when spouses hold property as joint tenants with right of survivorship (JTWROS), each spouse is treated as owning an equal half. At the first spouse’s death, only the deceased spouse’s half of the property receives a step-up in basis under IRC §1014. The surviving spouse’s half retains its original cost basis. For a couple who bought a home together decades ago, this means the surviving spouse steps up the basis on only 50% of the appreciation.
In community property states, both halves of community property receive a step-up under IRC §1014(b)(6) at the first spouse’s death, because both spouses are treated as equal owners of the entire community property estate. Florida couples historically could not access this double step-up.
The Florida Community Property Trust Act (FS §736.1501)
In 2021, Florida enacted the Florida Community Property Trust Act, codified at Florida Statutes §736.1501. This statute allows married couples to hold assets in a specially structured community property trust that is recognized under Florida law and, if properly structured, may qualify trust assets for the full 100% step-up in basis at the first spouse’s death under IRC §1014(b)(6).
This is a meaningful planning opportunity for Florida couples with highly appreciated assets who would otherwise be limited to a 50% step-up under JTWROS. The trust must be correctly drafted and titled to qualify; not every trust labeled a “joint trust” or “marital trust” satisfies the statutory requirements. Florida couples interested in this strategy should review their existing trust documents alongside joint trust options for married couples in Florida to determine whether their current structure qualifies or needs to be revised.
No competitor currently appearing in the top search results for step-up in basis questions addresses this Florida-specific statutory option. It is a genuine planning differentiator for couples who have been Florida residents for many years and hold assets with substantial built-in gains.
How Does Carryover Basis Differ from Step-Up in Basis?
The step-up in basis and the carryover basis rule are not alternatives to each other. They apply to different types of transfers.
Under IRC §1015, when property is gifted during the donor’s lifetime, the recipient takes the donor’s original cost basis. Using the same example: if a parent bought stock at $50,000 and it is now worth $300,000, and the parent gifts the stock to a child today, the child’s basis is $50,000. When the child sells, they owe capital gains tax on all appreciation above $50,000.
If instead the parent holds the same stock until death, the heir inherits it with a stepped-up basis of $300,000. Any sale shortly after inheriting generates little or no capital gains tax on the prior appreciation. For highly appreciated assets, the tax difference between a lifetime gift and an inheritance can be substantial.
This does not mean lifetime gifting is always the wrong strategy. The annual gift tax exclusion ($19,000 per recipient in 2026 under IRS guidance following the One Big Beautiful Bill signed July 4, 2025) allows for tax-efficient wealth transfer of assets that have modest or no built-in gains. The planning question is always asset-specific: for a highly appreciated asset, holding until death typically produces better capital gains outcomes for the heir, while gifting may still make sense for cash or low-basis assets where the step-up benefit is smaller. This is a planning consideration, not a guarantee of any specific outcome.
Step-Up in Basis for Specific Asset Types
Inherited Real Estate in Florida
When you inherit real property in Florida, your cost basis is generally the property’s appraised fair market value as of the date of death, established through a qualified appraisal. Capital gains on any sale are calculated only from the inherited basis forward, not from what the original owner paid. Florida real estate that has appreciated over decades can pass to heirs with the entire prior gain eliminated for capital gains purposes.
The appraisal for basis purposes is typically ordered as part of the estate’s administration. If the real property passes through probate, that appraisal is often part of the required inventory filed with the court. If the property is held in a revocable trust, the trustee arranges the appraisal as part of trust settlement. Property that is not held in a trust and has no beneficiary designation will require Florida probate administration before title can transfer to the heir.
Inherited Brokerage Accounts and Stocks
For taxable brokerage accounts (not pre-tax retirement accounts), inherited stocks and mutual funds receive a step-up in basis to the closing price or average of the high and low prices on the date of death, as specified under Treasury Reg §1.1014-3. The financial institution holding the account typically updates the cost basis records once it receives a death certificate and appropriate documentation. The heir should verify the updated basis on their account statement before placing any sell orders.
Retirement accounts are treated differently and do not receive a step-up in basis. Distributions from an inherited traditional IRA or 401(k) are taxed as ordinary income to the beneficiary, regardless of what the account was worth at death. The step-up in basis rule does not apply to pre-tax retirement account funds because those funds have never been taxed, and distributions from them trigger income tax rather than capital gains tax.
Inherited Business Interests
Partnership interests and LLC membership interests in a closely held business generally receive a step-up in basis at the owner’s death. Depending on how the entity is structured, an increased outside basis may also allow the partnership or LLC to make an optional basis adjustment under IRC §754 that increases the depreciation and cost recovery available inside the entity. This is a technically complex area of tax and estate law. Beneficiaries who inherit a business interest should work with both an estate attorney and a CPA to understand the full tax picture before making decisions about continued ownership or a sale.
What This Means for Your Florida Estate Plan
The step-up in basis is not a benefit that operates automatically regardless of how assets are held or transferred. The choice of trust structure, how title is held, whether assets are gifted during life or passed at death, and which assets are placed inside which trust type all directly affect whether heirs receive the step-up and for what portion of the value.
For most Florida families with appreciated real estate or investment portfolios, preserving the step-up in basis for heirs is a primary goal. For estates that also face federal estate tax exposure, the interaction between the step-up in basis and the estate tax creates a planning tension: the same irrevocable trust that reduces estate tax often eliminates the step-up for the assets it holds. A complete estate plan addresses both exposures simultaneously rather than optimizing for one at the cost of the other.
The current federal estate tax exemption is $15,000,000 per person for 2026, set by the One Big Beautiful Bill signed July 4, 2025. That threshold determines how much of an estate is exposed to federal estate tax. Estates below that threshold may find that preserving the step-up in basis is the dominant tax concern, since there is no estate tax to offset. Estates above that threshold require a more nuanced analysis weighing the cost of the estate tax against the capital gains tax cost of losing the step-up. For current exemption figures and their effect on Florida estates, see our page on Florida estate tax and federal estate tax exemption.
In our estate planning practice, one of the questions we hear most often from clients with appreciated real estate or investment portfolios is whether placing those assets in a trust will cost their heirs the step-up benefit. The answer depends entirely on the type of trust and how it is structured. A revocable trust preserves the benefit. A properly structured irrevocable trust typically does not. And a Florida Community Property Trust, for married couples with the right asset profile, may expand the benefit beyond what JTWROS titling provides.
Review Your Estate Plan with a Florida Attorney
Step-up in basis planning is one piece of a complete estate plan. If you have appreciated real estate, an investment portfolio, or a business interest in Florida, the structure of your estate plan directly affects what your heirs receive after taxes. Schedule your free 30-minute consultation with Bucelo Diaz Law, or call us at 954.399.1910. We serve clients in Weston, Ocala, Naples, and throughout Florida.
Frequently Asked Questions About Step-Up in Basis
What is step-up in basis?
When you inherit property, the IRS generally allows you to establish a new cost basis equal to the property’s fair market value on the date of the original owner’s death. This is known as a stepped-up basis. Any increase in value that occurred during the deceased person’s lifetime is not subject to capital gains tax when you sell the property. The rule is found in IRC §1014 and applies to most inherited assets, including real estate and taxable investment accounts.
Does a revocable trust get a step-up in basis?
Yes. Assets held in a revocable living trust at the time of the grantor’s death receive a stepped-up basis. Because the grantor retains the right to revoke the trust and change its terms during their lifetime, the trust assets remain part of the grantor’s taxable estate under IRC §2038. That estate inclusion is what triggers the step-up under IRC §1014. Placing assets in a revocable trust does not forfeit this benefit.
Does an irrevocable trust get a step-up in basis?
Generally, no. When a grantor transfers assets to an irrevocable trust and gives up control, those assets are typically no longer part of the grantor’s taxable estate under IRC §§2036 and §2038. Because the assets are outside the estate, the step-up in basis under IRC §1014 does not apply. IRS Revenue Ruling 2023-2 confirmed this position for irrevocable grantor trusts where assets are not includible in the gross estate. Exceptions exist for trusts where the grantor retains a qualifying interest that keeps assets in the estate.
What is carryover basis and how does it differ from step-up in basis?
Carryover basis applies when property is gifted during the donor’s lifetime rather than inherited. Under IRC §1015, the recipient takes the donor’s original cost basis. If a parent bought stock for $50,000 and gifts it when it is worth $300,000, the recipient carries over the $50,000 basis and would owe capital gains tax on any gain above that amount when selling. With inherited property, the basis is reset to date-of-death fair market value, which can eliminate the tax on that same gain entirely.
Does inherited stock get a step-up in basis?
Yes, if the stock is held in a taxable brokerage account rather than a pre-tax retirement account. When you inherit shares of stock, your basis is generally the fair market value of those shares on the date of the decedent’s death. Any gains that accrued before that date are forgiven for capital gains purposes. For shares held in an IRA or 401(k), different rules apply: distributions from inherited retirement accounts are taxed as ordinary income, not capital gains, regardless of what the account was worth at death.
Does inherited real estate in Florida get a step-up in basis?
Yes. When you inherit real property in Florida, your cost basis is typically the property’s appraised fair market value as of the date of death. If you later sell the property, capital gains are calculated only on appreciation from the inherited basis, not from what the original owner paid. Establishing the correct basis usually requires a qualified appraisal obtained as part of the probate or trust administration process. This appraisal is often part of the required estate inventory filed with the court during probate.
How does step-up in basis work for married couples in Florida?
Florida is a common-law property state. When spouses hold property as joint tenants with right of survivorship, only the deceased spouse’s half receives a stepped-up basis at death. The surviving spouse’s half retains its original cost basis. However, the Florida Community Property Trust Act (FS §736.1501) allows married couples to hold assets in a specially structured trust and potentially qualify for a full 100% step-up on both halves at the first spouse’s death. Proper trust drafting is required.
Does the step-up in basis change if the federal estate tax exemption changes?
The step-up in basis rule in IRC §1014 is separate from the federal estate tax exemption. Changes to the exemption affect whether an estate owes federal estate tax, but they do not by themselves eliminate or modify the step-up in basis for heirs. As of the date of this page, the step-up rule remains in effect. For current exemption figures and their effect on Florida estates, see our page on Florida estate tax and federal estate tax exemption.
General Information Disclosure: This page provides general information about federal tax rules that affect inherited property and estate planning in Florida. Tax and estate planning rules depend on individual circumstances and may change with legislation. The information on this page does not constitute legal or tax advice. Consult a Florida-licensed estate planning attorney and a qualified tax professional before making decisions about your estate plan.
Bucelo Diaz Law, PLLC is a Florida law firm.
About the Author
Alexis Bucelo Diaz, Esq., LL.M. is the founding attorney of Bucelo Diaz Law, PLLC. She holds a Juris Doctor and a Master of Laws (LL.M.) in Estate Planning from the University of Miami School of Law and has more than 15 years of focused experience in Florida estate planning and probate law. She is a WealthCounsel member and practices in English and Spanish. Florida Bar #86918. Selected to Super Lawyers Rising Stars in 2025.
