[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR25.2515-2]

[Page 565-566]
 
                       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.  25.2515-2  Tenancies by the entirety; transfers treated as gifts; manner of election and valuation.

    (a) The election to treat the creation of a tenancy by the entirety 
in real property, or additions made to its value, as constituting a gift 
in the calendar quarter or calendar year in which effected, shall be 
exercised by including the value of such gifts in the gift tax return of 
the donor for such calendar quarter or calendar year in which the 
tenancy was created, or the additions in value were made to the 
property. See section 6019 and the regulations thereunder. The election 
may be exercised only in a return filed within the time prescribed by 
law, or before the expiration of any extension of time granted pursuant 
to law for the filing of the return. See section 6075 for the time for 
filing the gift tax return and section 6081 for extensions of time for 
filing the return, together with the regulations thereunder. In order to 
make the election, a gift tax return must be filed for the calendar 
quarter or calendar year in which the tenancy was created, or additions 
in value thereto made, even though the value of the gift involved does 
not exceed the amount of the exclusion provided by section 2503(b). See 
Sec.  25.2502-1(c)(1) for the definition of calendar quarter.
    (b) If the donor spouse exercises the election as provided in 
paragraph (a) of this section, the amount of the gift at the creation of 
the tenancy is the amount of his contribution to the tenancy less the 
value of his retained interest in it, determined as follows:
    (1) If under the law of the jurisdiction governing the rights of the 
spouses, either spouse, acting alone, can bring about a severance of his 
or her interest in the property, the value of the donor's retained 
interest is one-half the value of the property.
    (2) If, under the law of the jurisdiction governing the rights of 
the spouses each is entitled to share in the income or other enjoyment 
of the property but neither, acting alone, may defeat the right of the 
survivor of them to the whole of the property, the amount of retained 
interest of the donor is determined by use of the appropriate actuarial 
factors for the spouses at their respective attained ages at the time 
the transaction is effected.
    (c) Factors representing the respective interests of the spouses, 
under a tenancy by the entirety, at their attained ages at the time of 
the transaction may be readily computed based on the method described in 
Sec.  25.2512-5. State law may provide that the husband only is entitled 
to all of the income or other enjoyment of the real property held as 
tenants by the entirety, and the wife's interest consists only of the 
right of survivorship with no right of severance. In such a case, a 
special factor may be needed to determine the value of the interests of 
the respective spouses. See Sec.  25.2512-5(d)(4) for the procedure for 
obtaining special factors from the Internal Revenue Service in 
appropriate cases.
    (d) The application of this paragraph may be illustrated by the 
following example:

    Example. A husband with his own funds acquires real property valued 
at $10,000 and has it conveyed to himself and his wife as tenants by the 
entirety. Under the law of the jurisdiction governing the rights of the 
parties, each spouse is entitled to share in the income from the 
property but neither spouse acting alone could bring about a severance 
of his or her interest. The husband elects to treat the transfer as a 
gift in the year in which effected. At the time of transfer, the ages of 
the husband and wife are 45 and 40, respectively, on their birthdays 
nearest to the date of transfer. The value of the gift to the wife is 
$5,502.90, computed as follows:

Value of property transferred...............................  $10,000.00
Less $10,000x0.44971 (factor for value of donor's retained      4,497.10
 rights)....................................................
                                                             -----------

[[Page 566]]


Value of gift...............................................    5,502.90



[T.D. 6334, 23 FR 8904, Nov. 15, 1958, as amended by T.D. 7150, 36 FR 
22900, Dec. 2, 1971; T.D. 7238, 37 FR 28731, Dec. 29, 1972; T.D. 8540, 
59 FR 30177, June 10, 1994]