Guides › Transfer-on-Death Deeds
Updated July 31, 2026. Quick answer: for one house going to clear-cut beneficiaries, a transfer-on-death deed does the single thing most people buy a living trust for — keeping the home out of probate — at recording-fee cost instead of the roughly $2,475 a typical revocable-trust package runs. The trust earns its price when the situation is NOT simple: incapacity planning, multiple properties or states, minor or spendthrift beneficiaries, contingent chains (“to my spouse, then split among children, unless…”). The deed is a scalpel; the trust is a toolbox.
What the TOD deed cannot do
Nothing while you are alive. If you lose capacity, a TOD deed provides no one to manage, refinance or sell the home — a trustee could; without a trust you are relying on a durable power of attorney or a court conservatorship. No plan B in many forms. If your beneficiary dies first and you never re-record, the house lands in probate anyway — the exact outcome you paid to avoid. No management for the young or unready. A deed hands an 19-year-old a house; a trust hands them a trustee.
What the trust cannot beat
Price, simplicity, and reversibility. A TOD deed is one recorded document, revocable by recording another, with no retitling, no trust-funding project, and no maintenance. The classic living-trust failure — the trust that was signed but never funded, so the house probates anyway — cannot happen to a deed that IS the recording. For a widowed parent with one paid-off house going to two adult kids, the deed is usually the honest answer, and plenty of attorneys will say so.
Costs side by side: what a living trust costs · estate planning costs overall. What the deed does and doesn’t fix: the probate question · the failure modes.
The instrument is cheap. Choosing the right one is the skill.
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The number that surprises people who bought a long time ago
Downsizing is the one home sale where the gain is usually large and the exclusion usually still covers it. A couple who bought in 1994 for $180,000 and sell at $760,000 with $46,000 of selling costs have a realized gain of about $534,000 before improvements. That is above the $500,000 joint cap — but decades of capital improvements are exactly what brings it back under, and most sellers have never added them up.
Improvements are the lever, and the records are the constraint
A new roof, an addition, a replaced HVAC system, new windows, a finished basement: these add to basis. Repainting and repairs do not. Thirty years of improvements on a family home routinely total six figures, and every dollar of it reduces the gain dollar for dollar. The practical problem is documentary, not legal — the seller who kept receipts pays less than the identical seller who did not.
Why downsizers should check the net investment income tax separately
A retiree with modest ordinary income can still be pushed over the 3.8 percent NIIT threshold by the sale itself, because taxable gain is net investment income. The thresholds are $250,000 on a joint return and $200,000 otherwise, written into Section 1411(b) as fixed figures with no indexing. A sale that produces $120,000 of taxable gain on top of $180,000 of other income crosses the joint threshold and picks up 3.8 percent on the part above it.
The move itself may change the tax
Downsizing usually means moving, and sometimes across a state line. Some states tax the gain the federal exclusion just removed. If the sale and the move are in the same year, the order of the two matters, and it is worth checking the destination state before signing.
Related
Methodology
- Exclusion caps, the 2-of-5 test, the nonqualified-use allocation, the reduced-exclusion fraction and the depreciation carve-out are taken from the text of 26 U.S.C. 121. The 3.8 percent rate and its thresholds are from 26 U.S.C. 1411. Both were read on 2026-07-30.
- Section 121 caps and Section 1411 thresholds are written in the statute as fixed dollar amounts with no indexing mechanism, so they are built in. Long-term capital gain brackets ARE indexed annually, so your rate is an input rather than a lookup.
- Figures were computed by two independently written engines that agree to the cent, and the calculator on this page reproduces both exactly.
- Federal only. State treatment varies and some states do not follow the federal exclusion.
Educational estimate, not tax advice, and not a filed return. Federal only. Confirm anything that changes a filing decision with a CPA or tax attorney.
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