The inclusion of a 1/2 interest in a farm or building in the decedent's gross estate depends on several factors, primarily how the interest was acquired and how it is held and treated under state law.
- General Rule: According to the IRS FAQ, if a person owns a 1/2 interest in a farm or building with a sibling, friend, or other, typically only 1/2 of its value would be included in the gross estate. This is contingent on the nature of the ownership and state law.
- Joint Tenancy with Right of Survivorship: If the property is held in joint tenancy with rights of survivorship, the full value of the property is generally includible in the decedent's gross estate under section 2040(a) of the Code, except for the portion of the property value attributable to the surviving joint tenant's contributions toward the purchase of the property. However, if it is a qualified joint interest (e.g., held with a spouse), only one-half of the value is includible under section 2040(b).
- Tenancy in Common: If the property is held as a tenancy in common, only the decedent's undivided one-half interest is includible in the gross estate under section 2033 of the Code. This is because each tenant in common owns a distinct, undivided interest in the property.
- Special Situations:
- Felonious Homicide: If the surviving joint tenant is guilty of the decedent's murder, the treatment of the property can vary by state. For example, in State X, the murderer holds the property in constructive trust for those equitably entitled, and the decedent's estate includes one-half of the property's value plus the present value of the remainder interest in the other half. In State Y, one-half of the property vests immediately in the decedent's estate, and the other half passes to the estate upon the murderer's death unless severed or partitioned.
- Gift Tax Considerations: If the property was transferred within three years of the decedent's death, section 2035(a) may require inclusion of the transferred interest in the gross estate, along with any gift tax paid under section 2035(c).
- State Law Influence: The specific state law governing the property can significantly affect what is includible. For instance, if state law converts a joint tenancy to a tenancy in common upon divorce, only the decedent's undivided one-half interest as a tenant in common is includible.
In summary, the includible amount in the gross estate for a 1/2 interest in a farm or building with a sibling, friend, or other depends on the form of ownership and state law. Generally, it would be 1/2 of the property's value, but specific circumstances such as joint tenancy with survivorship rights, qualified joint interests, and state-specific rules on felonious homicide or divorce can alter this inclusion.
Sources:
§ 2031. Definition of gross estate
§ 1014. Basis of property acquired from a decedent
Rev. Rul. 78-166
Rev. Rul. 80-241
Rev. Rul. 82-159
