Specialized Returns for Individuals · Estate tax

Jointly-held property

Verification 2026 Verified
tax year · reviewed 2026-08-20 · Draft for I. Ohu review

Joint ownership is the most common estate planning device that nobody plans. Clients open joint accounts for convenience, add a child to a deed to avoid probate, and title a house jointly because the bank suggested it. Each of those decisions has an estate tax consequence fixed by a single section, and the consequence is different depending on whether the co-owner is a spouse. Getting it wrong usually costs basis rather than tax, which is why it goes unnoticed for years.

The rule

The default is that the decedent owned all of it. the whole value of jointly held property with right of survivorship is in the decedent's gross estate, except the part shown to have originally belonged to the other owner and never to have been acquired from the decedent for less than adequate and full consideration (IRC § 2040(a))^TY2026 The burden is on the estate: the survivor’s share comes out only if it can be shown to have been the survivor’s, which means records.

And a partial contribution buys a proportionate exclusion. where the survivor did furnish consideration, the excluded part is the proportion of the whole value that the survivor's consideration bears to the total cost of acquisition and capital additions — and only consideration not itself traceable to the decedent counts (IRC § 2040(a); Reg. § 20.2040-1(a)(2))^TY2026 The second half of that rule is the one that defeats families: money the survivor received from the decedent does not count as the survivor’s consideration.

Inherited joint interests are different. where the joint interest was itself acquired by gift, devise, bequest or inheritance, the decedent's fractional share is included and the consideration test never runs (IRC § 2040(a) second proviso; Reg. § 20.2040-1(a)(1))^TY2026 Where three siblings inherit a property as joint tenants, each is a third, and no tracing is required or permitted.

Spouses get a flat rule. exactly one-half, whatever either spouse contributed — for property held by the decedent and the decedent's spouse as tenants by the entirety, or as joint tenants with right of survivorship where the two spouses are the only joint tenants (IRC § 2040(b))^TY2026 It does not matter which spouse paid, or in what proportion, or whether any record survives. Note the second condition: the two spouses must be the only joint tenants, so adding an adult child to the title takes the property out of § 2040(b) altogether and back into the consideration test.

Unless the surviving spouse is not a citizen. IRC § 2040(b) does not apply where the surviving spouse is not a United States citizen, so the consideration-furnished test of § 2040(a) governs instead and the marital deduction is denied unless the property passes in a qualified domestic trust (IRC § 2056(d)(1))^TY2026

A tenancy in common is not in this section at all. a tenancy in common has no survivorship, so IRC § 2040 never applies to it — the decedent's undivided fractional interest is in the gross estate under § 2033 and passes by will or intestacy rather than to the co-tenant^TY2026

Then the part that matters most in practice. basis under IRC § 1014 follows inclusion — property required to be included in the gross estate by reason of death, form of ownership or other conditions takes a date-of-death value basis, so a survivor who excluded half from the estate steps up only that half (IRC § 1014(b)(9))^TY2026 And the contrast that decides where couples should hold property: the surviving spouse's own one-half of community property takes a date-of-death basis too, provided at least half of the whole community interest was includible in the decedent's gross estate — a full step-up on both halves, which no form of joint tenancy achieves (IRC § 1014(b)(6))^TY2026

Current figures

Item	Rule
General rule	the whole value of jointly held property with right of survivorship is in the decedent's gross estate, except the part shown to have originally belonged to the other owner and never to have been acquired from the decedent for less than adequate and full consideration (IRC § 2040(a))^TY2026
Proportionate exception	where the survivor did furnish consideration, the excluded part is the proportion of the whole value that the survivor's consideration bears to the total cost of acquisition and capital additions — and only consideration not itself traceable to the decedent counts (IRC § 2040(a); Reg. § 20.2040-1(a)(2))^TY2026
Inherited joint interest	where the joint interest was itself acquired by gift, devise, bequest or inheritance, the decedent's fractional share is included and the consideration test never runs (IRC § 2040(a) second proviso; Reg. § 20.2040-1(a)(1))^TY2026
Qualified joint interest	exactly one-half, whatever either spouse contributed — for property held by the decedent and the decedent's spouse as tenants by the entirety, or as joint tenants with right of survivorship where the two spouses are the only joint tenants (IRC § 2040(b))^TY2026
Non-citizen surviving spouse	IRC § 2040(b) does not apply where the surviving spouse is not a United States citizen, so the consideration-furnished test of § 2040(a) governs instead and the marital deduction is denied unless the property passes in a qualified domestic trust (IRC § 2056(d)(1))^TY2026
Tenancy in common	a tenancy in common has no survivorship, so IRC § 2040 never applies to it — the decedent's undivided fractional interest is in the gross estate under § 2033 and passes by will or intestacy rather than to the co-tenant^TY2026
Basis follows inclusion	basis under IRC § 1014 follows inclusion — property required to be included in the gross estate by reason of death, form of ownership or other conditions takes a date-of-death value basis, so a survivor who excluded half from the estate steps up only that half (IRC § 1014(b)(9))^TY2026
Community property basis	the surviving spouse's own one-half of community property takes a date-of-death basis too, provided at least half of the whole community interest was includible in the decedent's gross estate — a full step-up on both halves, which no form of joint tenancy achieves (IRC § 1014(b)(6))^TY2026
Basic exclusion amount	$15,000,000 for a decedent dying in calendar year 2026 — the IRC § 2010(c)(3)(A) basic exclusion amount as raised by Pub. L. 119-21 § 70106, indexed from calendar year 2026 and rounded to the nearest $10,000 under § 2010(c)(3)(B)^TY2026
Annual gift exclusion	$19,000 per donee for calendar year 2026, for gifts other than gifts of future interests (IRC § 2503(b))^TY2026

How it works in practice

Ask two questions in order. Are the only joint owners a married couple? If yes, it is half, and nothing else matters. If no, whose money bought it — and can that be proved?

The proof problem is the real one. Section 2040(a) puts the whole value in the gross estate unless the estate shows otherwise, and the showing has to survive an examination. For an account opened in the 1990s, contemporaneous records rarely exist. In practice this means a joint account between a parent and an adult child is fully in the parent’s estate, because the child cannot show what they put in.

Watch the traced-back rule. Where a parent gives a child money and the child then contributes it to a jointly held asset, the contribution is not the child’s for § 2040(a) purposes. The regulation counts only consideration “not attributable to money or other property acquired … from the decedent for less than a full and adequate consideration.” Gifted money never becomes the donee’s consideration.

Adding a joint owner is often a gift. Creating a joint tenancy in real property with right of survivorship is generally a completed gift of the interest transferred, and a joint bank account generally is not until the non-depositor withdraws. That difference matters when a client says “I just added my daughter to the house.”

Then price the basis. This is where the routine advice goes wrong. Property in the gross estate takes a date-of-death basis under § 1014; property excluded from it does not. A survivor who successfully proves he furnished half the consideration has kept half the value out of the estate — and has kept half the property at its old basis. If no estate tax was payable either way, that proof cost the family money.

And say the community property point out loud. In a community property state, the survivor’s own half gets a new basis as well. No joint tenancy in a common law state achieves that. For a couple in a community property state holding an appreciated asset, community property with right of survivorship is usually better than joint tenancy for exactly this reason.

The account the daughter could not prove

A widow dies with $340,000 in a joint account with her daughter, opened eleven years earlier. The daughter deposited her own salary into it for several years but has no statements from that period.

The whole $340,000 is in the gross estate. Section 2040(a) includes all of it except the part shown to have originally belonged to the daughter, and the burden sits with the estate. What the daughter actually contributed is not the question; what she can demonstrate is. Had she kept the records, she could have excluded her proportion — and would then have taken that proportion at its original basis instead of a date-of-death basis.

The house the husband paid for entirely

A married couple own their home as tenants by the entirety. The husband paid the whole purchase price and every improvement. He dies when the house is worth $900,000.

$450,000 is in his gross estate. Section 2040(b) makes a qualified joint interest exactly one-half regardless of contribution, and a tenancy by the entirety between spouses always qualifies. His widow’s half takes no new basis — it was not in his estate — so if they paid $200,000 she now holds a property worth $900,000 with a basis of $100,000 plus $450,000, or $550,000. The flat rule is favourable for estate tax and costs basis, and both halves of that are automatic.

The third joint tenant that changed the rule

The same couple, but ten years earlier they added their son to the deed so the house would pass without probate. The husband still paid for everything.

Section 2040(b) no longer applies, because the spouses are not the only joint tenants. The consideration test in § 2040(a) governs instead, and the husband furnished all of it, so the entire $900,000 is in his gross estate rather than half. The son’s addition to the title, done to simplify administration, doubled the inclusion. It also made a gift at the time it was done. The one consolation is that basis follows inclusion, so the full value does step up.

The proof that was not worth having

Two unmarried partners own a rental property jointly. One dies. The estate is well under the basic exclusion amount and no estate tax is payable on any view. The survivor produces bank records showing she paid 60 percent of the purchase price.

The records exclude 60 percent of the value from the gross estate — and 60 percent of the property from § 1014. Because no tax was due either way, the exclusion saved nothing and cost a step-up on the larger share. Where the estate is comfortably below the exclusion amount, the incentive on § 2040(a) runs the other way, and the tracing exercise is worth doing only after asking whether inclusion is actually unwelcome.

Assuming a joint account is half each. Only for spouses. Between any other co-owners § 2040(a) starts at the whole value and works backwards through consideration.

Counting gifted money as the survivor’s contribution. Reg. § 20.2040-1(a)(2) takes into account only consideration not attributable to property acquired from the decedent for less than full and adequate consideration.

Applying § 2040(b) where a third person is on the title. The qualified joint interest definition requires the spouses to be the only joint tenants (IRC § 2040(b)(2)(B)). A tenancy by the entirety cannot include a third party, but a joint tenancy can, and that is where this arises.

Forgetting § 2056(d)(1)(B). With a non-citizen surviving spouse, § 2040(b) is switched off entirely and the consideration test governs.

Treating a tenancy in common as a joint interest. There is no survivorship, so § 2040 does not apply. The fractional interest is included under § 2033 and passes under the will.

Optimising the estate tax and ignoring the basis. Under a large exclusion, most estates owe nothing, and the only live consequence of § 2040 is how much of the property gets a new basis. Advice that maximises exclusion from the gross estate can be exactly backwards.

Assuming joint tenancy gives a community property result. It does not. Only community property gets the survivor’s half revalued, under § 1014(b)(6).

How this has changed

Section 2040 has been stable since 1981, when the current § 2040(b) replaced a narrower qualified joint interest regime that required an election and a gift tax filing. Nothing in Pub. L. 119-21 amended it, § 2033, § 2056(d) or § 1014.

What has changed is which half of the section matters. When the basic exclusion amount was small, the whole of the analysis was about keeping value out of the gross estate, and a survivor who could prove contribution had won something. At $15,000,000 for a decedent dying in calendar year 2026 — the IRC § 2010(c)(3)(A) basic exclusion amount as raised by Pub. L. 119-21 § 70106, indexed from calendar year 2026 and rounded to the nearest $10,000 under § 2010(c)(3)(B)^TY2026, the overwhelming majority of estates will never pay estate tax, and the operative consequence of § 2040 is § 1014 basis. The same facts that used to argue for careful tracing now often argue against it. Advice written before 2018 on this topic is not wrong on the law and is frequently wrong on the conclusion.

The one thing that has become more common rather than less is the third-joint-tenant problem. Adding an adult child to a deed to avoid probate is more popular than it was, and it silently moves the property out of § 2040(b) and into § 2040(a), where the parent usually furnished everything.

Exam focus

Expect a computation with a stated contribution split. The discipline is to identify the relationship first: spouses and only spouses give one-half under § 2040(b) with no tracing; anyone else goes to § 2040(a) and the proportion of consideration furnished.

Expect the traced-gift wrinkle — a survivor whose contribution came from the decedent contributed nothing for this purpose. Expect the inherited joint interest, where the fractional share applies and consideration is irrelevant.

Know that a tenancy in common is outside § 2040 entirely, and know that § 2056(d)(1)(B) disapplies § 2040(b) for a non-citizen surviving spouse.

Check yourself

1. A brother and sister hold land as joint tenants with right of survivorship. The brother paid $180,000 of the $300,000 purchase price from his own funds; the sister paid the rest from hers. The brother dies when the land is worth $500,000. How much is in his gross estate?

Answer: $300,000. Under IRC § 2040(a) the whole value is included except the part attributable to the sister’s own consideration — 40 percent, or $200,000 — leaving 60 percent of the $500,000 date-of-death value.

2. Same facts, except the sister’s $120,000 was a gift from the brother two years before the purchase. How much is in his gross estate?

Answer: The whole $500,000. Reg. § 20.2040-1(a)(2) takes into account only consideration not attributable to property acquired from the decedent for less than full and adequate consideration, so the gifted funds are not the sister’s contribution.

3. A married couple hold a brokerage account as joint tenants with right of survivorship, and they are the only joint tenants. The wife funded all of it. She dies. How much is in her gross estate?

Answer: One-half. IRC § 2040(b) makes a qualified joint interest exactly half regardless of who furnished the consideration.

4. The same couple had also added their son as a third joint tenant. How much is in her gross estate?

Answer: All of it. IRC § 2040(b)(2)(B) requires the decedent and the spouse to be the only joint tenants, so § 2040(a) applies instead and she furnished the entire consideration.

5. A surviving spouse who is not a United States citizen held a home with the decedent as tenants by the entirety. Does the one-half rule apply?

Answer: No. IRC § 2056(d)(1)(B) provides that § 2040 (b) shall not apply where the surviving spouse is not a citizen, so the consideration-furnished test in § 2040(a) governs.

Change log

2026-08-20Initial draft. Sets out the two regimes in IRC § 2040 — the consideration-furnished rule of § 2040(a) with the proportionate exception in Reg. § 20.2040-1(a)(2) and the fractional rule for inherited joint interests, and the flat one-half rule of § 2040(b) for a qualified joint interest — with the § 2056(d)(1)(B) exclusion for a non-citizen spouse, the § 2033 treatment of a tenancy in common, and the basis consequences under § 1014(b)(6) and (b)(9).