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Joint tenancy with rights of survivorship (JTROS) is a popular format in which to hold real property. The most marked characteristic of this type ownership is the right of survivorship. Pursuant to this right, upon the death of one of the joint tenants ITs), the interest held by the tenant passes to the remaining joint tenants without having to undergo probate. The passing of property in this way often has a dramatic impact upon both the basis of the surviving joint tenant(s) in the property and the estate of the decedent. Determination of this impact is dependent upon the relationship of the joint tenants and the manner in which the asset was acquired.
The Impact of Acquisition
Purchase The effect of a purchase of an asset in JTROS is dependent upon the relationship of the JTs. As a general rule where assets are acquired in JTROS, inclusion of value in the estate of a decedent JT is determined based upon the percentage of the purchase price contributed by such tenant. The value placed on this interest then passes to the surviving JTs, resulting in an adjustment of their basis. Where more than one surviving JT exists, the basis of each surviving JT is adjusted by a pro rata portion of the value placed on the interest included in the decedent's gross estate.
Example: X and Y, unrelated taxpayers, purchase Sommerdale for $15,000, taking title in JTROS. X provides $10,000 of the purchase price and Y provides $5,000. Y predeceases X at which time the value of the asset is $45,000. As a result, a value of $15,000 ($45,000 x $5,000/$15,000) is placed on the interest held by Y for estate purposes, and X acquires a 100% interest in Sommerdale with a basis of $25,000 ($10,000 purchase price paid by X plus $15,000 for the interest of Y that will pass to X as a result of Y's death).
An exception to the general rule applies where the property is acquired in JTROS by a married couple during the course of the marriage, and the couple is the only owner of the property. In such instance, each spouse is considered to have provided one-half of the consideration regardless of how much each spouse actually provided. Upon...