26 C.F.R. § 25.2515-3
the termination of the tenancy (other than by the death of a spouse) always results in the making of a gift by a spouse who receives a smaller share of the proceeds of the termination (whether received in cash, property or interests in property) than the share of the proceeds attributable to the total consideration furnished by him. See paragraph (c) of § 25.2515-1 for a discussion of what constitutes consideration and the value thereof. Thus, a gift is effected at the time of termination of the tenancy by the spouse receiving less than one-half of the proceeds of termination if such spouse (regardless of age) furnished one-half or more of the total consideration for the purchase and improvements, if any, of the property held in the tenancy. Also, if one spouse furnished the entire consideration, a gift is made by such spouse to the extent that the other spouse receives any portion of the proceeds of termination. See § 25.2515-4 for determination of the amount of the gift, if any, in cases in which the creation of the tenancy was treated as a gift or a portion of the consideration was furnished by a third person. See paragraph (d)(2) of § 25.2515-1 as to the acts which effect a termination of the tenancy.
Example (1). In 1956 the husband furnished $30,000 and his wife furnished $10,000 of the consideration for the purchase and subsequent improvement of real property held by them as tenants by the entirety. The husband did not elect to treat the consideration furnished as a gift. The property later is sold for $60,000, the husband receiving $35,000 and his wife receiving $25,000 of the proceeds of the termination. The termination of the tenancy results in a gift of $10,000 by the husband to his wife, computed as follows:
[$30,000 (consideration furnished by husband) ÷ $40,000 (total consideration furnished by both spouses)] * $60,000 (proceeds of termination) = $45,000
$45,000-$35,000 (proceeds received by husband) = $10,000 gift by husband to wife
Example (2). In 1950 the husband purchased shares of X Company for $10,000. In 1955 when those shares had a fair market value of $30,000, he and his wife purchased real property from A and had it conveyed to them as tenants by the entirety. In payment for the real property, the husband transferred his shares of X Company to A and the wife paid A the sum of $10,000. They later sold the real property for $60,000, divided $24,000 (each taking $12,000) and reinvested the remaining $36,000 in other real property under circumstances that satisfied the conditions set forth in paragraph (d)(2)(ii) of § 25.2515-1 . The tenancy was terminated only with respect to the $24,000 divided between them. This termination of the tenancy resulted in a gift of $6,000 by the husband to the wife, computed as follows:
[$30,000 (consideration furnished by husband) ÷ $40,000 (total consideration furnished by both spouses)] * $24,000 (proceeds of termination) = $18,000
$18,000 - $12,000 (proceeds received by husband) = $6,000 gift by husband to wife.
Since the tenancy was terminated only in part, with respect to the remaining portion of the tenancy each spouse is considered as having furnished that proportion of the total consideration for the remaining portion of the tenancy as the consideration furnished by him before the sale bears to the total consideration furnished by both spouses before the sale. See paragraph (c) of § 25.2515-1 . The consideration furnished by the husband for the reduced tenancy is $27,000, computed as follows:
[$30,000 (consideration furnished by husband before sale) ÷ $40,000 (total consideration furnished by both spouses before sale)] * $36,000 (consideration for reduced tenancy) = $27,000
The consideration furnished by the wife is $9,000, computed in a similar manner.
26 C.F.R. §25.2515-3