The short answer
Joint tenancy with right of survivorship is a form of co-ownership in which two or more people each hold an undivided interest in the whole property, and when one dies that owner's interest passes automatically to the surviving joint tenants rather than through a will. For section 1031 each joint tenant owns a share of the real estate, so each is a separate taxpayer who can exchange, or decline to exchange, his or her own share. At death, the estate tax rules decide how much of the property is included in the decedent's estate, and that drives how much of the basis is stepped up.
At a glance
| Ownership | Undivided interest in the whole, with survivorship on death |
|---|---|
| Exchange | Each joint tenant is a separate taxpayer for section 1031 |
| Spouses as only joint tenants | Half the value is in the first spouse's estate, so half the basis is stepped up |
| Other joint tenants | Inclusion follows who paid for the property, under section 2040(a) |
Survivorship is state property law; the tax consequences come from sections 2040 and 1014.
State law creates the tenancy and the right of survivorship. Federal tax law looks through it: Reg. section 1.1031(a)-3(a)(5) lists co-ownership among the interests that are real property, and the Instructions for Form 1099-S require a separate Form 1099-S for each transferor when several people sell the same real estate.
At death, section 2040 sets how much is in the decedent's gross estate. For a 'qualified joint interest', property held by spouses as tenants by the entirety or as joint tenants where they are the only joint tenants, it is one-half regardless of who paid. For other joint tenants it is the whole value, less the part the survivor can show he or she paid for. Section 1014 then gives a fair market value basis to the included part.
Survivorship also follows the property into the exchange. If the replacement is vested in joint tenancy, it passes to the surviving owners at a death without probate, so the vesting chosen at the replacement closing is an estate planning decision as much as a title one.
A worked example from IRS Publication 551 shows the basis the survivor ends up with.
In the example in IRS Publication 551, John and Jim own business property as joint tenants bought for $30,000, John paying two-thirds. Before John's death $12,000 of depreciation was allowed, and the property is worth $60,000 at his death, two-thirds of which is in his estate.
Jim's basis is $10,000 for the third he paid for, plus $40,000 for the two-thirds received at John's death, minus $6,000 for his half of the depreciation: $44,000. If Jim exchanged that property later, $44,000 is the basis he would carry into the exchange. Had the two been married and the only joint tenants, half would have been included and only that half stepped up. Run your own numbers with your CPA.
It bites when co-owners want different outcomes, and when an exchange cuts off a step-up.
Because each joint tenant is a separate taxpayer, one can exchange while another takes cash, and each must buy replacement property in his or her own name or disregarded entity. How that split is usually handled is in multi-owner 1031 options and one partner wants cash.
Vesting a replacement in joint tenancy also sets up the result at death. Elderly owners comparing an exchange with holding for a basis step-up should read 1031 vs hold for step-up; spouses may also compare tenancy by the entirety and, in some states, community property.
Related questions
Can one joint tenant sell and exchange without the other?
A buyer usually needs everyone on title to sign, but each owner's tax result is separate. One joint tenant can route his or her share of the proceeds through a qualified intermediary while the other takes cash.
Does the surviving joint tenant need to do anything for the step-up?
The basis adjustment follows from the estate inclusion rules, but the survivor needs a date-of-death value to prove it. An appraisal near the date of death is the usual record.
Can we take title to the replacement as joint tenants if we sold as joint tenants?
Yes, and keeping the same vesting avoids questions about whether each person replaced his or her own share. Changing the shares between co-owners at the replacement closing can look like a transfer between taxpayers.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.