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Taxation of Jointly Owned Property (Portfolio 823)

Tax Management Portfolio, Taxation of Jointly Owned Property, No. 823-3rd, presents a detailed study of the federal estate, gift, and income taxation of concurrent ownership interests in property with respect to which there is a right of survivorship, and highlights certain non-tax issues in connection with transfers of interests in jointly owned property. 

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Tax Management Portfolio, Taxation of Jointly Owned Property, No. 823-3rd, presents a detailed study of the federal estate, gift, and income taxation of concurrent ownership interests in property with respect to which there is a right of survivorship, and highlights certain non-tax issues in connection with transfers of interests in jointly owned property. The Portfolio addresses both joint tenancies in which the co-tenants are not married and joint tenancies (and tenancies by the entirety) in which the co-tenants are married. Also, it discusses the special rules governing spousal joint tenancies when one spouse is not a U.S. citizen.
Among the issues discussed in the Portfolio are: (1) the gift tax consequences of the creation or termination of a joint tenancy; (2) the estate tax consequences at the death of a joint tenant; (3) the income tax basis rules that apply to gifts of joint tenancy interests and to a surviving joint tenant's interest following another joint tenant's death; and (4) the rules governing allocations of income, deductions, losses, and credits among joint tenants.
The Portfolio also discusses the significant developments in the rules governing spousal joint tenancies that have occurred since 1976. Repealed §§2515 and 2515A, which at one time governed the gift taxation of the creation and termination of spousal joint tenancies, have been reinstated for purposes of the gift taxation of joint tenancies involving a non-citizen spouse. To assist the reader in following the evolution of these rules and in applying the previously expired rules to non-citizen spouses, the Worksheets set forth the full text of the predecessor versions of §2040 (which governs the estate taxation of joint interests), all versions of repealed §§2515 and 2515A, and the regulations issued under repealed §2515.
This Portfolio may be cited as Danforth, 823-3rd T.M., Taxation of Jointly Owned Property.


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AUTHORS

ROBERT T. DANFORTH
Robert T. Danforth; B.A., Washington University (1980); J.D. with High Honors, Duke University (1986); Order of the Coif; Article Editor, Duke Law Journal, 1985–86; Law Clerk, Judge Stephanie K. Seymour, United States Court of Appeals for the 10th Circuit, 1986–87; Adjunct Assistant Professor, University of Tulsa College of Law, 1986; Associate, Arnold & Porter, Washington, D.C., 1987–91; Associate (1992–96) and Of Counsel (1997), McGuireWoods LLP, Charlottesville and Tysons Corner, Virginia; Lecturer, University of Virginia School of Law (1995–97); Assistant Professor of Law (1997–2002), Associate Professor of Law (2002-2006), Professor of Law (2006–present), Washington and Lee University School of Law; Academic Fellow, American College of Trust and Estate Counsel; member, Tax Management Advisory Board on Estates, Gifts and Trusts; author or co-author of : 819 T.M., Grantor Trusts: Income Taxation Under Subpart E (2010) (with Howard M. Zaritsky); Estate and Gift Taxation (LexisNexis 2011) (with Brant J. Hellwig); Federal Income Taxation of Trusts and Estates (Carolina Academic Press 3d ed. 2008) (with Mark L. Ascher); Federal Income Taxation of Estates and Trusts (WG&L/RIA 3d ed. 2001) (with Howard M. Zaritsky and Norman Lane).

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

A. Scope of Portfolio

1. In General

2. The Tax Relief Act of 2001

B. Types of Jointly Owned Property

1. In General

2. Joint Tenancy

3. Tenancy by the Entirety (Spousal Joint Tenancy)

4. Contractual Ownership Arrangements

5. Comparison to Other Concurrent Ownership Arrangements

6. Nominal Joint Interests

C. State Law Issues

1. Relevance of State Law Generally

2. Collecting Facts Relevant to Taxation

a. In General

b. When and in What Manner the Tenancy Was Created

c. When and in What Manner the Tenancy Was Terminated

d. Joint Tenants' Relative Contributions to Property

e. Marital Status and Citizenship of Joint Tenants

f. Life Expectancies

3. Rights of Creditors

a. Introduction

b. Tenancy by the Entirety

c. Joint Tenancy

d. Transferee Tax Liability of Surviving Joint Tenants

4. State Inheritance, Estate, and Gift Tax Considerations

5. Surviving Joint Tenant's Right to Contribution for Indebtedness

D. Estate Planning Considerations

II. Gift Taxation of Jointly Held Property

A. Overview of Gift Tax Principles

B. Creation of Joint Tenancies

1. Tenancy Created by a Third Party

2. Tenancy Created by a Co-tenant

a. In General

b. Spousal Joint Tenancies

(1) General Rules

(2) Transactions Implicating Former § 2515

(3) Transactions Implicating Former § 2515A

(4) Special Rules for Non-Citizen Spouses

3. Creation of Bank Accounts and Other Revocable Ownership Arrangements

4. Nominal Joint Ownership

C. Termination of Joint Tenancies

1. In General

2. Nonspousal Joint Tenancies

3. Spousal Joint Tenancies

a. In General

b. Terminations Implicating Former § § 2515 and 2515A

c. Terminations Involving Non-Citizen Spouses

d. Terminations Incident to Divorce

4. Revocable and Nominal Tenancies

5. Termination Planning Strategies

D. Gift Tax Implications of Income Generated by Joint Tenancies

E. Disclaimers

III. Estate Taxation of Jointly Held Property

A. Introduction

B. Overview of § 2040

C. Non-Spousal Tenancies - § 2040(a)

1. Section 2040(a) Presumption

2. The Consideration-Furnished Rule

a. In General

b. Bank Accounts, Savings Bonds, and Nominal Joint Tenancies

(1) Joint Bank Accounts

(2) Savings Bonds

(3) Nominal Joint Tenancies

3. Consideration Defined

a. Prior Gifts from the Decedent

(1) Income Received on Gifted Property

(2) Appreciation in Property Value

b. Liability of Survivor for Indebtedness

c. Survivor's Rendition of Services as Contribution

d. Capital Additions

4. Joint Property Acquired by Gift or Inheritance

D. Spousal Tenancies - § 2040(a)

1. Community Property

2. Marital and Support Rights as Consideration

3. Services

E. Spousal Tenancies - § 2040(b)

1. Qualified Joint Interests

2. Qualified Joint Interests Under Prior Law

3. Gallenstein Rule

4. Non-Citizen Spouse Exception

F. Relation to Other Code Sections

1. Section 2033

2. Section 2035

a. Historical Perspective

b. Present Law

3. Sections 2036 and 2038

G. Disclaimers

1. Timing

2. Acceptance of Benefits

H. Simultaneous Deaths of Joint Tenants

IV. Income Taxation of Jointly Held Property

A. Allocation of Income, Gains, and Credits

1. In General

2. Joint Bank and Brokerage Accounts

3. United States Savings Bonds

4. Income Paid After Death of Joint Tenant

B. Allocation of Deductions and Losses

1. In General

2. Interest and Taxes

3. Casualties and Other Losses

4. Depreciation and Depletion

a. Allowance

b. Recapture - § § 1245 and 1250

C. Income Tax Basis Rules

1. Joint Tenancies Created by Gifts - § § 1015, 1041

2. Property Received by Right of Survivorship - § § 1014, 1022, and 1023

a. In General

b. Burden on Taxpayer to Establish Basis Step Up

c. Carryover Basis Under § 1023

d. Depreciation Adjustments to Basis - § 1014(b)(9)

e. Gifts Within One Year of Donee's Death - § 1014(e)

f. Carryover Basis Under § 1022

D. Holding Period - § 1223

1. Gifts

2. Transfers at Death

E. Miscellaneous Additional Issues

1. Partnership Elections

2. Divorce

3. Tax Liens

4. Partitions and Related Transactions

5. Purchase and Sale of Principal Residence

6. Involuntary Conversions


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Flowchart of Estate Tax Rules for Decedents Dying After 1981

Worksheet 2 Section 2040 Joint Interests

Worksheet 3 Predecessor Versions of Section 2040

Worksheet 4 Repealed Section 2515 and its Predecessor Versions

Worksheet 5 Repealed Section 2515A

Worksheet 6 Regulations Under Repealed Section 2515

Bibliography

OFFICIAL

Internal Revenue Code:

Legislative History:

Revenue Rulings:

Cases:

UNOFFICIAL

Treatises:

Periodicals:

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1993

1994

1995

1996

1997

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2002

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2008