Appeals court allows 100% stepped-up basis for pre-1977 spousal joint property.

• Author: Springgate, Susan K.
• Position: Brief Article

In Gallenstein, 6th Cir., 1992, aff'g DC Ky., 1991, Mr. and Mrs. Gallenstein had purchased real estate for $38,500 in 1955. Mr. Gallenstein provided all of the consideration for the purchase but title was taken jointly. Mr. Gallenstein died in 1987. Mrs. Gallenstein sold a portion of the property in 1988.

What is her tax basis in the property?

Possible responses

1. Mrs. Gallenstein's tax basis is 50% of the original purchase price plus 50% of the fair market value (FMV) on Mr. Gallenstein's death. 2. Mrs. Gallenstein's tax basis is 100% of the FMV on Mr. Gallenstein's death.

Court of Appeals

The Sixth Circuit upheld the district court's decision that response No. 2 was correct.

Before 1977, marital joint interests were subject to Sec. 2040(a), which required the full value of property jointly owned by a decedent to be included in his gross estate, except to the extent that the survivor could show that she provided consideration. The Tax Reform Act of 1976 amended this rule to provide that only 50% of the value of a spousal joint interest was included in the first estate if the spousal joint interest was created after 1976. The provision was again amended in 1981m effective for estates of decedents dying after 1981.

The Sixth Circuit held that the effective date of the 1981 amendment did not repeal the effective date of the 1976 amendment. Therefore, the...