IRS Rules for Joint Tenancy With Right of Survivorship

The IRS rules for joint tenancy with right of survivorship split sharply along one line: whether the co-owners are spouses. When spouses hold property as joint tenants, exactly half the value goes into the deceased spouse’s estate no matter who paid for it. When the co-owners are anyone else — a parent and child, siblings, unmarried partners — the IRS presumes the deceased owner paid for the whole thing and includes 100% of the value in their estate, unless the survivor can prove they contributed their own money. That inclusion percentage then controls the surviving owner’s income tax basis, the gift tax exposure from creating the tenancy in the first place, and what the survivor eventually owes when they sell.

How Much Goes Into the Deceased Owner’s Estate

Spouses: Automatic 50%

Property held by spouses as joint tenants with right of survivorship (or as tenants by the entirety) is a “qualified joint interest” under the tax code. Half the fair market value on the date of death is included in the deceased spouse’s gross estate. It does not matter which spouse earned the money, made the down payment, or paid the mortgage.¹

The included half is almost always sheltered by the unlimited marital deduction, so no federal estate tax comes due. If a home is worth $1,200,000 when the first spouse dies, $600,000 lands in the gross estate and the marital deduction wipes out the tax on it.

Non-Spouses: The Consideration Furnished Rule

Joint tenancies between anyone other than spouses follow a much harsher default. The IRS includes 100% of the property’s value in the deceased joint tenant’s gross estate, and the burden falls on the surviving co-owner to prove they contributed their own money to the purchase.¹

When the survivor can document a contribution, the included amount drops proportionally. Say a parent and adult child buy a rental for $400,000 and the child pays $100,000 of that. If the parent dies when the property is worth $800,000, the child’s 25% contribution keeps 75% ($600,000) in the parent’s gross estate. If the parent funded the entire purchase, the full $800,000 goes in.

The contribution has to be money that originally belonged to the survivor and was never received from the decedent. Money the child earned on their own counts. Money the parent gifted to the child, which the child then used to buy in, does not. The IRS traces the funds back to their source, which is why records of who paid what matter from the day the tenancy is created.

What the Inclusion Percentage Does to the Survivor’s Basis

Inherited property gets its cost basis reset to fair market value at the date of death. This step-up can dramatically cut capital gains tax when the survivor sells, and the size of the step-up tracks the estate tax inclusion percentage exactly.²

The Spousal Half Step-Up

Because 50% of a qualified joint interest is included in the deceased spouse’s estate, the surviving spouse gets a step-up on that half only. The survivor’s own half keeps its original cost basis.

Say a couple bought a property for $400,000 (each spouse’s basis is $200,000) and it’s worth $1,000,000 when the first spouse dies. The deceased spouse’s half steps up from $200,000 to $500,000. The surviving spouse’s half stays at $200,000. New total basis: $700,000. Sell immediately for $1,000,000 and the taxable gain is $300,000, not $600,000.

The Non-Spousal Step-Up

Here the step-up can range from nothing extra to a full reset of the entire property value. If the deceased co-owner funded the whole purchase, 100% is included in their estate and the survivor receives a complete step-up to current fair market value. All prior appreciation is erased for income tax purposes.

If the survivor contributed half, only 50% is included and only that half gets stepped up. The survivor’s own half retains its original cost basis. The executor has to pin down the correct inclusion ratio because it locks in the survivor’s basis going forward.

Community Property Beats JTWROS on Basis

Married couples in community property states get a materially better deal. Both halves of community property receive a step-up to fair market value when one spouse dies, including the surviving spouse’s half.²

Using the same numbers, if the couple held the property as community property instead of JTWROS, the surviving spouse’s new basis would be the full $1,000,000, not $700,000. That $300,000 difference in basis translates directly to lower capital gains tax on a sale. Estate planners in community property states sometimes advise against converting community property into joint tenancy for exactly this reason.

Gift Tax When the Tenancy Is Created

Adding someone as a joint tenant on property you paid for can trigger a federal gift. What happens depends on the asset and the relationship.

Real Estate

Putting real estate into JTWROS with a non-spouse is generally treated as a completed gift of the fractional interest transferred, effective when the deed is recorded. If a parent buys a house for $500,000 and titles it jointly with an adult child, the parent has made a gift equal to the child’s fractional share of the value at that time. When the gift exceeds the annual exclusion ($19,000 per recipient for 2026), the donor must file Form 709.³

Bank and Brokerage Accounts

Joint accounts work differently. Creating the account is usually an incomplete gift as long as the person who deposited the funds can still withdraw everything. A completed gift happens only when the non-contributing co-owner pulls money out for their own use. At that point the withdrawal counts as a gift for that year and gets measured against the annual exclusion.

Transfers Between Citizen Spouses

The unlimited marital deduction eliminates gift tax on transfers between U.S. citizen spouses regardless of amount. Creating joint tenancy with a citizen spouse has no gift tax consequences.

Non-Citizen Spouses Do Not Get the Spousal Rules

The favorable spousal rules assume both spouses are U.S. citizens. When the surviving spouse is not a citizen, two benefits disappear at once: the automatic 50% inclusion rule does not apply, and the unlimited marital deduction is not available at death.⁴

Instead, the estate uses the consideration-furnished tracing rule that applies to non-spousal joint tenancies. The IRS presumes the deceased spouse funded 100% of the property, and the executor must prove otherwise. Without the marital deduction to shelter the included amount, the estate faces real tax if the total gross estate exceeds the $15,000,000 exemption for 2026.¹

One workaround is a Qualified Domestic Trust, or QDOT. If the JTWROS property is transferred into a QDOT before the estate tax return is due, the marital deduction becomes available for that property. The trust needs at least one U.S. citizen trustee (or a domestic corporation as trustee), and no principal distributions can be made unless that trustee has the right to withhold the estate tax on the distribution.⁵ The QDOT requirement falls away if the surviving non-citizen spouse becomes a U.S. citizen before the estate tax return is filed and was a U.S. resident continuously after the death.

For lifetime gifts to a non-citizen spouse, an enhanced annual exclusion applies in place of the unlimited marital deduction. For 2026, a U.S. citizen can give up to $194,000 to a non-citizen spouse without triggering gift tax. Anything above that requires Form 709 and eats into the donor’s lifetime exemption.

Federal Tax Liens on a Joint Tenant’s Share

If one joint tenant owes back taxes, the IRS can place a federal tax lien on that person’s interest. The lien attaches only to the delinquent taxpayer’s share, but the IRS can force a judicial sale of the entire property under IRC § 7403 as long as the non-liable co-owner is compensated from the proceeds.⁶

If a buyer purchases the taxpayer’s interest at the sale, the joint tenancy typically converts into a tenancy in common under state law, and the right of survivorship is destroyed.

Survivorship creates an unusual dynamic. In most states, if the joint tenant with the tax debt dies before the other co-owner, the lien disappears because the debtor’s interest vanishes at death, and the surviving co-owner takes the property free of it. If the debtor outlives the other co-owner, the lien expands to cover the entire property. A small number of states, including Wisconsin and Connecticut, are exceptions where the lien survives even after the debtor’s death.⁶

What the Surviving Owner Needs to Keep

For deaths in 2026, Form 706 has to be filed if the gross estate (plus adjusted taxable gifts and any specific exemption amount) exceeds $15,000,000. JTWROS assets are included at the percentage set by the spousal or consideration-furnished rules.⁷

Even when the estate falls under the filing threshold, the executor still needs to calculate the inclusion ratio. That ratio sets the surviving owner’s stepped-up basis, and the IRS can challenge it years later when the property sells.

Documents worth holding onto:

The death certificate, which establishes the date of death and triggers the basis adjustment.
A qualified appraisal of the property as of the date of death, which pins down the fair market value used for the step-up.
For non-spousal joint tenancies, contribution records: bank statements, canceled checks, wire transfer confirmations, or anything else showing who paid what toward the original purchase. Without these, the IRS defaults to 100% inclusion in the deceased tenant’s estate.
Form 706 if one was filed, or the executor’s written determination of the inclusion ratio if not.

When the survivor eventually sells, the cost basis reported on the tax return has to match the estate tax inclusion. A mismatch is one of the fastest ways to draw an audit or a surprise capital gains bill.

1
Office of the Law Revision Counsel. 26 USC 2040 – Joint Interests
2
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
3
Internal Revenue Service. What’s New – Estate and Gift Tax
4
Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse
5
Office of the Law Revision Counsel. 26 USC 2056A – Qualified Domestic Trust
6
Internal Revenue Service. 5.17.2 Federal Tax Liens
7
Internal Revenue Service. Frequently Asked Questions on Estate Taxes