Legal Definitions - carveout

Definition: A carveout is an exception to a general rule. In tax terms, it refers to the separation of income derived from a property from the property itself.

Example 1: A company may have a policy that all employees must work a minimum of 40 hours per week. However, there may be a carveout for employees with medical conditions that prevent them from working full-time.

Example 2: In tax law, a carveout may be used to separate the income earned from a property from the property itself. For instance, if a person owns a rental property, they may be able to carve out the income earned from renting the property from the property's overall value for tax purposes.

The examples illustrate how a carveout is an exception to a general rule. In the first example, the general rule is that all employees must work a minimum of 40 hours per week. However, the carveout allows for an exception to this rule for employees with medical conditions. In the second example, the general rule is that income earned from a property is taxed along with the property's overall value. However, the carveout allows for the separation of the income earned from the property for tax purposes.