Creating and Terminating Joint Tenancies in Real Estate
Several issues arise when a non-citizen spouse owns real estate jointly with a citizen spouse. The rules governing the creation and termination of joint tenancies in real estate where one or both spouses are non-citizens are complex. This section deals with tenancies established after July 13, 1988. Different rules apply for different time periods before that date.
(A) The Portion of the Jointly-Owned Real Estate Is Includable in the Estate of the First Spouse to Die
Since 1988 the I.R.S. has followed a contribution rule. Under the contribution rule, upon the death of joint property owner, his or her estate will include that portion of the property attributable to the portion of the original purchase price and cost of capital additions supplied by the decedent, over the total cost of acquisition and capital additions. The burden of proof with respect to contribution is on the executor to show that the surviving joint tenant furnish some portion of the consideration or that the property was acquired by the decedent and the other joint owner by gift, bequest, devise or inheritance. In community property states, each spouse is considered to have supplied half of the consideration. The community property rules supersede the contribution rule.
(B) Real Estate with a Situs Outside the United States
If the decedent is a non-U.S. domiciliary, his or her U.S. taxable estate does not include property with a situs outside the U.S.
If the decedent’s spouse is a U.S. citizen or domiciliary, his gross estate includes the value of all property owned at death regardless of situs. The contribution rule would apply for all real estate, including that with a=2 0situs outside the U.S., if the surviving spouse of a U.S. domiciliary is a non-citizen. However, if the surviving spouse is a U.S. citizen, the spousal joint tenancy rule would apply.
(C) Creation of Joint Tenancy or Tenancy by the Entirety
The creation of a joint tenancy or tenancy by the entirety in real estate, as well as any additions to the value of the tenancy in the form of improvements, reductions of indebtedness, or otherwise, is not deemed to be a transfer of property for gift tax purposes, regardless of the proportion of the consideration furnished by each spouse, provided the creation of the tenancy would otherwise be a gift to a non-citizen donee spouse. If the donee spouse is a U.S. citizen, establishment of the joint tenancy is treated as a gift within the unlimited marital deduction.
(D) Termination of Joint Tenancy or Tenancy by the Entirety
If a joint tenancy or tenancy by the entirety is later terminated other than by the death of one spouse, the spouse is deemed to have made a gift to the extent that the proportion of the total consideration furnished by the spouse, multiplied by the proceeds of the termination, exceeds the value of the proceeds of termination received by the spouse. In other words, there is a gift to the extent that one spouse receives less than his or her proportionate share of the proceeds based on the percentage of consideration each spouse contributed toward the original purchase price, plus improvements or reductions of indebtedness. Therefore, to the extent that upon termination the donee spouse simply receives back his or her proportionate share, there is no gift. If the non-citizen spouse receives more than his or her proportionate share, then there is a gift.
If the joint tenancy or tenancy by the entirety is terminated by death, the contribution rule will apply if the surviving spouse is a non-citizen. The contribution rule does not apply if the surviving spouse is a citizen.
I.R.C. §§ 2040(a), 2040(b) and Treas. Reg. 20.2040-1(a)(2).
Treas. Reg. 20.2056A-8(a)(1) and 20.2040-1(a)(2).
I.R.C. § 2103.
I.R.C. § 2101.
Treas. Reg. 20.2056A-8(a)(1).
Treas. Reg. 25.2523(I).2(b)(2)(I).