Federal Income Tax Treatment of Divisions of Property

Abstract

This article addresses the application of federal income tax principles to divisions of property between co-owners, such as joint tenants or fractional share beneficiaries of a decedent’s estate. The article demonstrates that, although the general rule is that such a division is not a taxable event, there are numerous exceptions. The article develops specific rules for dealing with each type of co-ownership and recommends legislation that could improve the clarity and application of those rules.