[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR25.2515-1]

[Page 550-555]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 25_GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954--Table of Contents
 
Sec.  25.2515-1  Tenancies by the entirety; in general.

    (a) Scope--(1) In general. This section and Sec.  Sec.  25.2515-2 
through 25.2515-4 do not apply to the creation of a tenancy by the 
entirety after December 31, 1981, and do not reflect changes made to the 
Internal Revenue Code by sections 702(k)(1)(A) of the Revenue Act of 
1978, or section 2002(c)(2) of the Tax Reform Act of 1976.
    (2) Special rule in the case of tenancies created after July 13, 
1988, if the donee spouse is not a United States citizen. Under section 
2523(i)(3), applicable (subject to the special treaty rule contained in 
Public Law 101-239, section 7815(d)(14)) in the case of tenancies by the 
entirety and joint tenancies created between spouses after July 13, 
1988, if the donee spouse is not a citizen of the United States, the 
principles contained in section 2515 and Sec.  Sec.  25.2515-1 through 
25.2515-4 apply in determining the gift tax consequences with respect to 
the creation and termination of the tenancy, except that the election 
provided in section 2515(a) (prior to repeal by the Economic Recovery 
Tax Act of 1981) and Sec.  25.2515-2 (relating to the donor's election 
to treat the creation of the tenancy as a transfer for gift tax 
purposes) does not apply.
    (3) Nature of. An estate by the entirety in real property is 
essentially a joint tenancy between husband and wife with the right of 
survivorship. As used in this section and Sec.  Sec.  25.2515-2 through 
25.2515-4, the term ``tenancy by the entirety'' includes a joint tenancy 
between husband and wife in real property with right of survivorship, or 
a tenancy which accords to the spouses rights equivalent thereto 
regardless of the term by which such a tenancy is described in local 
property law.
    (b) Gift upon creation of tenancy by the entirety; in general. 
During calendar years prior to 1955 the contribution made by a husband 
or wife in the creation of a tenancy by the entirety constituted a gift 
to the extent that the consideration furnished by either spouse exceeded 
the value of the rights retained by that spouse. The contribution made 
by either or both spouses in the creation of such a tenancy during the 
calendar year 1955, any calendar year beginning before January 1, 1971, 
or any calendar quarter beginning after December 31, 1970, is not deemed 
a gift by either spouse, regardless of the proportion of the total 
consideration furnished by either spouse, unless the donor spouse elects 
(see Sec.  25.2515-2) under section 2515(c) to treat such transaction as 
a gift in the calendar quarter or calendar year in which the transaction 
is effected. See Sec.  25.2502-1(c)(1) for the definition of calendar 
quarter. However, there is a gift upon the termination of such a 
tenancy, other than by the death of a spouse, if the proceeds received 
by one spouse on termination of the tenancy are larger than the proceeds 
allocable to the consideration furnished by that spouse to the tenancy. 
The creation of a tenancy by the entirety takes place if (1) a husband 
or his wife purchases property and causes the title thereto to be 
conveyed to themselves as tenants by the

[[Page 551]]

entirety, (2) both join in such a purchase, or (3) either or both cause 
to be created such a tenancy in property already owned by either or both 
of them. The rule prescribed herein with respect to the creation of a 
tenancy by the entirety applies also to contributions made in the making 
of additions to the value of such a tenancy (in the form of 
improvements, reductions in the indebtedness, or otherwise), regardless 
of the proportion of the consideration furnished by each spouse. See 
Sec.  25.2516-1 for transfers made pursuant to a property settlement 
agreement incident to divorce.
    (c) Consideration--(1) In general. (i) The consideration furnished 
by a person in the creation of a tenancy by the entirety or the making 
of additions to the value thereof is the amount contributed by him in 
connection therewith. The contribution may be made by either spouse or 
by a third party. It may be furnished in the form of money, other 
property, or an interest in property. If it is furnished in the form of 
other property or an interest in property, the amount of the 
contribution is the fair market value of the property or interest at the 
time it was transferred to the tenancy or was exchanged for the property 
which became the subject of the tenancy. For example, if a decedent 
devised real property to the spouses as tenants by the entirety and the 
fair market value of the property was $30,000 at the time of the 
decedent's death, the amount of the decedent's contribution to the 
creation of the tenancy was $30,000. As another example, assume that in 
1950 the husband purchased real property for $25,000, taking it in his 
own name as sole owner, and that in 1956 when the property had a fair 
market value of $40,000 he caused it to be transferred to himself and 
his wife as tenants by the entirety. Here, the amount of the husband's 
contribution to the creation of the tenancy was $40,000 (the fair market 
value of the property at the time it was transferred to the tenancy). 
Similarly, assume that in 1950 the husband purchased, as sole owner, 
corporate shares for $25,000 and in 1956, when the shares had a fair 
market value of $35,000, he exchanged them for real property which was 
transferred to the husband and his wife as tenants by the entirety. The 
amount of the husband's contribution to the creation of the tenancy was 
$35,000 (the fair market value of the shares at the time he exchanged 
them for the real property which became the subject of the tenancy).
    (ii) Whether consideration derived from third-party sources is 
deemed to have been furnished by a third party or to have been furnished 
by the spouses will depend upon the terms under which the transfer is 
made. If a decedent devises real property to the spouses as tenants by 
the entirety, the decedent, and not the spouses, is the person who 
furnished the consideration for the creation of the tenancy. Likewise, 
if a decedent in his will directs his executor to discharge an 
indebtedness of the tenancy, the decedent, and not the spouses, is the 
person who furnished the consideration for the addition to the value of 
the tenancy. However, if the decedent bequeathed a general legacy to the 
husband and the wife and they used the legacy to discharge an 
indebtedness of the tenancy, the spouses, and not the decedent, are the 
persons who furnished the consideration for the addition to the value of 
the tenancy. The principles set forth in this subdivision with respect 
to transfers by decedents apply equally well to inter vivos transfers by 
third parties.
    (iii) Where a tenancy is terminated in part (e.g., where a portion 
of the property subject to the tenancy is sold to a third party, or 
where the original property is disposed of and in its place there is 
substituted other property of lesser value acquired through reinvestment 
under circumstances which satisfy the requirements of paragraph 
(d)(2)(ii) of this section), the proportionate contribution of each 
person to the remaining tenancy is in general the same as his 
proportionate contribution to the original tenancy, and the character of 
his contribution remains the same. These proportions are applied to the 
cost of the remaining or substituted property. Thus, if the total 
contribution to the cost of the property was $20,000 and a fourth of the 
property was sold, the contribution to the remaining portion of the 
tenancy is normally $15,000. However, if it is

[[Page 552]]

shown that at the time of the contribution more or less than one-fourth 
thereof was attributable to the portion sold, the contribution is 
divided between the portion sold and the portion retained in the proper 
proportion. If the portion sold was acquired as a separate tract, it is 
treated as a separate tenancy. As another example of the application of 
this subdivision, assume that in 1950 X (a third party) gave to H and W 
(H's wife), as tenants by the entirety, real property then having a 
value of $15,000. In 1955, H spent $5,000 thereon in improvements and 
under section 2515(c) elected to treat his contribution as a gift. In 
1956, W spent $10,000 in improving the property but did not elect to 
treat her contribution as a gift. Between 1957 and 1960 the property 
appreciated in value by $30,000. In 1960, the property was sold for 
$60,000, and $45,000 of the proceeds of the sale were, under 
circumstances that satisfy the requirements of paragraph (d)(2)(ii) of 
this section, reinvested in other real property. Since X contributed 
one-half of the total consideration for the original property and the 
additions to its value, he is considered as having furnished $22,500 
(one-half of $45,000) toward the creation of the remaining portion of 
the tenancy and the making of additions to the value thereof. Similarly, 
H is considered as having furnished $7,500 (one-sixth of $45,000) which 
was treated as a gift in the year furnished, and W is considered as 
having furnished $15,000 (one-third of $45,000) which was not treated as 
a gift in the year furnished.
    (2) Proportion of consideration attributable to appreciation. Any 
general appreciation (appreciation due to fluctuations in market value) 
in the value of the property occurring between two successive 
contribution dates which can readily be measured and which can be 
determined with reasonable certainty to be allocable to any particular 
contribution or contributions previously furnished is to be treated, for 
the purpose of the computations in Sec.  Sec.  25.2515-3 and 25.2515-4, 
as though it were additional consideration furnished by the person who 
furnished the prior consideration. Any general depreciation in value is 
treated in a comparable manner. For the purpose of the first sentence of 
this subparagraph, successive contribution dates are the two consecutive 
dates on which any contributions to the tenancy are made, not 
necessarily by the same party. Further, appreciation allocable to the 
prior consideration falls in the same class as the prior consideration 
to which it relates. The application of this subparagraph may be 
illustrated by the following examples:

    Example (1). In 1940, H purchased real property for $15,000 which he 
caused to be transferred to himself and W (his wife) as tenants by the 
entirety. In 1956 when the fair market value of the property was 
$30,000, W made $5,000 improvements to the property. In 1957 the 
property was sold for $35,000. The general appreciation of $15,000 which 
occurred between the date of purchase and the date of W's improvements 
to the property constitutes an additional contribution by H, having the 
same characteristics as his original contribution of $15,000.
    Example (2). In 1955 real property was purchased by H and W and 
conveyed to them as tenants by the entirety. The purchase price of the 
property was $15,000 of which H contributed $10,000 and W, $5,000. In 
1960 when the fair market value of the property is $21,000, W makes 
improvements thereto of $5,000. The property then is sold for $26,000. 
The appreciation in value of $6,000 results in an additional 
contribution of $4,000 (10,000/15,000x$6,000) by H, and an additional 
contribution by W of $2,000 (5,000/15,000x$6,000). H's total 
contribution to the tenancy is $14,000 ($10,000+$4,000) and W's total 
contribution is $12,000 ($5,000+ $2,000+$5,000).
    Example (3). In 1956 real property was purchased by H and W and 
conveyed to them as tenants by the entirety. The purchase price of the 
property was $15,000, on which a down payment of $3,000 was made. The 
remaining $12,000 was to be paid in monthly installments over a period 
of 15 years. H furnished $2,000 of the down payment and W, $1,000. H 
paid all the monthly installments. During the period 1956 to 1971 the 
property gradually appreciates in value to $24,000. Here, the 
appreciation is so gradual and the contributions so numerous that the 
amount allocable to any particular contribution cannot be ascertained 
with any reasonable certainty. Accordingly, in such a case the 
appreciation in value may be disregarded in determining the amount of 
consideration furnished in making the computations provided for in 
Sec.  Sec.  25.2515-3 and 25.2515-4.

    (d) Gift upon termination of tenancy by the entirety--(1) In 
general. Upon the termination of the tenancy, whether created before, 
during, or subsequent

[[Page 553]]

to the calendar year 1955, a gift may result, depending upon the 
disposition made of the proceeds of the termination (whether the 
proceeds be in the form of cash, property, or interests in property). A 
gift may result notwithstanding the fact that the contribution of either 
spouse to the tenancy was treated as a gift. See Sec.  25.2515-3 for the 
method of determining the amount of any gift that may result from the 
termination of the tenancy in those cases in which no portion of the 
consideration contributed was treated as a gift by the spouses in the 
calendar quarter or calendar year in which it was furnished. See Sec.  
25.2515-4 for the method of determining the amount of any gift that may 
result from the termination of the tenancy in those cases in which all 
or a portion of the consideration contributed was treated as 
constituting a gift by the spouses in the calendar quarter or calendar 
year in which it was furnished. See Sec.  25.2515-2 for the procedure to 
be followed by a donor who elects under section 2515(c) to treat the 
creation of a tenancy by the entirety (or the making of additions to its 
value) as a transfer subject to the gift tax in the calendar quarter 
(calendar year with respect to such transfers made before January 1, 
1971) in which the transfer is made, and for the method of determining 
the amount of the gift. See Sec.  25.2502-1(c)(1) for the definition of 
calendar quarter.
    (2) Termination--(i) In general. Except as indicated in subdivision 
(ii) of this subparagraph, a termination of a tenancy is effected when 
all or a portion of the property so held by the spouses is sold, 
exchanged, or otherwise disposed of, by gift or in any other manner, or 
when the spouses through any form of conveyance or agreement become 
tenants in common of the property or otherwise alter the nature of their 
respective interests in the property formerly held by them as tenants by 
the entirety. In general, any increase in the indebtedness on a tenancy 
constitutes a termination of the tenancy to the extent of the increase 
in the indebtedness. However, such an increase will not constitute a 
termination of the tenancy to the extent that the increase is offset by 
additions to the tenancy within a reasonable time after such increase. 
Such additions (to the extent of the increase in the indebtedness) shall 
not be treated by the spouses as contributions within the meaning of 
paragraph (c) of this section.
    (ii) Exchange or reinvestment. A termination is not considered as 
effected to the extent that the property subject to the tenancy is 
exchanged for other real property, the title of which is held by the 
spouses in an identical tenancy. For this purpose, a tenancy is 
considered identical if the proportionate values of the spouses' 
respective rights (other than any change in the proportionate values 
resulting solely from the passing of time) are identical to those held 
in the property which was sold. In addition the sale, exchange (other 
than an exchange described above), or other disposition of property held 
as tenants by the entirety is not considered as a termination if all 
three of the following conditions are satisfied:
    (a) There is no division of the proceeds of the sale, exchange or 
other disposition of the property held as tenants by the entirety;
    (b) On or before the due date for the filing of a gift tax return 
for the calendar quarter or calendar year (see Sec.  25.6075-1 for the 
time for filing gift tax returns) in which the property held as tenants 
by the entirety was sold, exchanged, or otherwise disposed of, the 
spouses enter into a binding contract for the purchase of other real 
property; and
    (c) After the sale, exchange or other disposition of the former 
property and within a reasonable time after the date of the contract 
referred to in $(b) of this subdivision, such other real property 
actually is acquired by the spouses and held by them in an identical 
tenancy.


To the extent that all three of the conditions set forth in this 
subdivision are not met (whether by reason of the death of one of the 
spouses or for any other reason), the provisions of the preceding 
sentence shall not apply, and the sale, exchange or other disposition of 
the property will constitute a termination of the tenancy. As used in 
subdivision (c) the expression ``a reasonable time'' means the time 
which, under the particular facts in each case,

[[Page 554]]

is needed for those matters which are incident to the acquisition of the 
other property (i.e., perfecting of title, arranging for financing, 
construction, etc.). The fact that proceeds of a sale are deposited in 
the name of one tenant or of both tenants separately or jointly as a 
convenience does not constitute a division within the meaning of 
subdivision (a) if the other requirements of this subdivision are met. 
The proceeds of a sale, exchange, or other disposition of property held 
as tenants by the entirety will be deemed to have been used for the 
purchase of other real property if applied to the purchase or 
construction of improvements which themselves constitute real property 
and which are additions to other real property held by the spouses in a 
tenancy identical to that in which they held the property which was 
sold, exchanged, or otherwise disposed of.
    (3) Proceeds of termination. (i) The proceeds of termination may be 
received by a spouse in the form of money, property, or an interest in 
property. Where the proceeds are received in the form of property (other 
than money) or an interest in property, the value of the proceeds 
received by that spouse is the fair market value, on the date of 
termination of the tenancy by the entirety, of the property or interest 
received. Thus, if a tenancy by the entirety is terminated so that 
thereafter each spouse owns an undivided half interest in the property 
as tenant in common, the value of the proceeds of termination received 
by each spouse is one-half the value of the property at the time of the 
termination of the tenancy by the entirety. If under local law one 
spouse, without the consent of the other, can bring about a severance of 
his or her interest in a tenancy by the entirety and does so by making a 
gift of his or her interest to a third party, that spouse is considered 
as having received proceeds of termination in the amount of the fair 
market value, at the time of the termination, of his severable interest 
determined in accordance with the rules prescribed in Sec.  25.2512-5. 
He has, in addition, made a gift to the third party of the fair market 
value of the interest conveyed to the third party. In such a case, the 
other spouse also is considered as having received as proceeds of 
termination the fair market value, at the time of termination, of the 
interest which she thereafter holds in the property as tenant in common 
with the third party. However, since section 2515(b) contemplates that 
the spouses may divide the proceeds of termination in some proportion 
other than that represented by the values of their respective legal 
interests in the property, if both spouses join together in making a 
gift to a third party of property held by them as tenants by the 
entirety, the value of the proceeds of termination which will be treated 
as received by each is the amount which each reports (on his or her gift 
tax return filed for the calendar quarter or calendar year in which the 
termination occurs) as the value of his or her gift to the third party. 
This amount is the amount which each reports without regard to whether 
the spouses elect under section 2513 to treat the gifts as made one-half 
by each. For example, assume that H and W (his wife) hold real property 
as tenants by the entirety; that in the first calendar quarter of 1972, 
when the property has a fair market value of $60,000, they give it to 
their son; and that on their gift tax returns for such calendar quarter, 
H reports himself as having made a gift to the son of $36,000 and W 
reports herself as having made a gift to the son of $24,000. Under these 
circumstances, H is considered as having received proceeds of 
termination valued at $36,000, and W is considered as having received 
proceeds of termination valued at $24,000.
    (ii) Except as provided otherwise in subparagraph (2)(ii) of this 
paragraph (under which certain tenancies by the entirety are considered 
not to be terminated), where the proceeds of a sale, exchange, or other 
disposition of the property are not actually divided between the spouses 
but are held (whether in a bank account or otherwise) in their joint 
names or in the name of one spouse as custodian or trustee for their 
joint interests, each spouse is presumed, in the absence of a showing to 
the contrary, to have received, as of the date of termination, proceeds 
of termination equal in value to the value

[[Page 555]]

of his or her enforceable property rights in respect of the proceeds.

[T.D. 6334, 23 FR 8904, Nov. 15, 1958, as amended by T.D. 7238, 37 FR 
28731, Dec. 29, 1972, as amended by T.D. 8522, 59 FR 9656, Mar. 1, 1994]