To calculate the value of a life estate in Texas, multiply the property’s fair market value by the life estate factor published in IRS Table S for the life tenant’s age and the current Section 7520 interest rate. The remainder interest is whatever is left. Three inputs, one multiplication, and the split between life tenant and remainderman is set.
That number does real work. It fixes the size of a reportable gift, sets each party’s share when the property is sold, feeds into Medicaid eligibility and estate recovery, and can affect what ends up in a taxable estate. Getting each input right is the whole job.
Step 1: Fix the Fair Market Value
Fair market value is the price the property would bring in an open sale between an informed, willing buyer and an informed, willing seller. Texas appraisal districts use essentially that definition when valuing property for tax purposes.1Texas Comptroller of Public Accounts. Valuing Property
A licensed appraisal is the strongest number you can put in the formula. A certified appraiser inspects the property, pulls comparable sales, and writes a supported value conclusion. Texas requires appraisals to follow the Uniform Standards of Professional Appraisal Practice and be prepared by an appraiser certified through the Texas Appraiser Licensing and Certification Board.2Legal Information Institute. Texas Code 10 Tex. Admin. Code 11.304 – Appraisal Rules and Guidelines A residential appraisal typically runs $400 to $600 for a standard single-family home, more for complex or high-value properties.
If the stakes are lower, the county appraisal district’s assessed value is a reasonable starting point, though it can lag the market. Recent sales of similar nearby properties can also anchor a value, particularly in neighborhoods with steady turnover. For anything the IRS or Medicaid will look at, a formal appraisal is worth the money.
Step 2: Look Up the Section 7520 Rate
The IRS publishes a special interest rate each month under Section 7520 of the Internal Revenue Code. It equals 120 percent of the federal midterm rate, rounded to the nearest two-tenths of a percent, and it changes every month.3Internal Revenue Service. Section 7520 Interest Rates For reference, the rate for April 2026 is 4.6%.
Use the rate for the month the valuation applies to. For a gift, that’s the month the gift is made, though the IRS lets you elect the rate from either of the two preceding months if it produces a better result.
Step 3: Pull the Factor From IRS Table S
With the rate set, look up the life estate factor in IRS Table S, part of Publication 1457. Table S organizes single-life factors by the life tenant’s age and the applicable Section 7520 rate.4Internal Revenue Service. Actuarial Tables The current version uses the 2010CM mortality table and applies to valuations on or after June 1, 2023. The IRS posts it as a downloadable spreadsheet on its actuarial tables page.
The factor is a decimal between 0 and 1. It represents the share of the property’s value that belongs to the life tenant. Younger life tenants have longer expected occupancy, so their factors are higher. Older life tenants get lower factors. Higher interest rates also push factors down, because the remainderman’s future interest is discounted less steeply when rates are up.
Step 4: Do the Math
The formula:
Life Estate Value = Fair Market Value × Life Estate Factor
Remainder Interest = Fair Market Value − Life Estate Value
A worked example. A Texas property has a fair market value of $400,000. The life tenant is 70. The Section 7520 rate for the valuation month is 4.0%. Looking up age 70 at 4.0% in Table S gives a factor of 0.55995.
- Life estate value: $400,000 × 0.55995 = $223,980
- Remainder interest: $400,000 − $223,980 = $176,020
Change one input and the split moves. If the same life tenant were 80, the factor would be noticeably lower, shrinking the life tenant’s share and enlarging the remainder. If the Section 7520 rate were 4.6% instead of 4.0% for the same 70-year-old, the factor would drop as well, for the same reason: higher rates cut the present value of future use.
When You Actually Need This Number
Reporting a Gift
Creating a life estate for someone else transfers the remainder interest to them, and the IRS treats that transfer as a gift. You calculate the gift’s value using the same Table S math, then compare it to the 2026 annual exclusion of $19,000 per recipient.5Internal Revenue Service. Frequently Asked Questions on Gift Taxes Gifts above that threshold require a Form 709, though no tax is typically owed until lifetime gifts exceed the combined estate and gift tax exemption, which is $15,000,000 for 2026.6Internal Revenue Service. What’s New – Estate and Gift Tax
One catch. The IRS generally classifies a gift of a remainder interest as a future interest, not a present interest, and the annual exclusion applies only to present-interest gifts. In many life estate arrangements the full remainder value is reportable from dollar one, regardless of the $19,000 figure.
Selling the Property
Each party can sell their own interest, and any buyer will want to know what they’re buying. More commonly, life tenant and remainderman sell the whole property together and divide the proceeds by their calculated shares. The Table S math gives you those shares.
Estate Inclusion
If someone transfers property but keeps a life estate in it, the full value of the property is pulled back into their taxable estate at death. Federal law requires the gross estate to include any property where the decedent retained possession, enjoyment, or income rights for life.7Office of the Law Revision Counsel. 26 USC 2036 – Transfers With Retained Life Estate Creating a traditional life estate does not remove the property from your federal estate, even though a remainderman has been named.
Medicaid and Estate Recovery
The Texas Health and Human Services Commission counts both life estate and remainder interests as resources for Medicaid eligibility, with limited exceptions. A life estate in your home can be excluded if it qualifies under the home exclusion, if a contract restriction prevents sale of the interest, or if the property produces income.8Legal Information Institute. Texas Code 1 Tex. Admin. Code 358.350 – Life Estates and Remainder Interest
Purchasing a life estate in someone else’s home can also trigger a transfer-of-asset penalty. To avoid one, the buyer must actually live in the home and continue living there for at least a year after the purchase.9Texas Health and Human Services. Medicaid for the Elderly and People with Disabilities Handbook – I-6100 Purchase of a Life Estate Moving out sooner means the entire purchase amount counts as a transfer for less than fair market value.
After a Medicaid recipient dies, Texas can seek reimbursement for long-term care costs through the Medicaid Estate Recovery Program. HHSC may file a claim against the estate of anyone who was 55 or older when receiving Medicaid services and who initially applied for certain long-term care benefits on or after March 1, 2005.10Texas Health and Human Services. Medicaid for the Elderly and People with Disabilities Handbook – D-7800 Medicaid Estate Recovery Program The life estate valuation sets the ceiling on what MERP can reach against that interest.
A Note on Lady Bird Deeds
Texas also recognizes an enhanced life estate deed, commonly called a Lady Bird deed. The valuation math is identical, because it still relies on IRS actuarial tables, but the legal picture is different. A Lady Bird deed lets the owner sell, mortgage, or revoke without the beneficiary’s consent, passes the property outside probate, and, when properly drafted and filed before death, can shield the property from a MERP claim; HHSC recognizes this as a valid planning method.11Texas Health and Human Services. Your Guide to the Medicaid Estate Recovery Program A traditional life estate does not offer the same protection. If your reason for calculating a life estate value involves Medicaid planning, the deed type matters as much as the number.