When one spouse transfers property to another spouse the recipient spouse’s basis is the same as the transferor-spouse's adjusted basis in the property (Code Sec. 1041(b)).

This rule applies even where the transaction is a sale between the spouses or where the transferee-spouse pays the transferor-spouse (as required under the divorce settlement) for the transfer of title to the property to the transferee-spouse (Reg Sec 1.1041-1T(a), Q&A-2).

This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than its fair market value at the time of transfer and applies for purposes of determining loss as well as gain, upon later sale by the transferee (Reg Sec 1.1041-1T(d)). There are exceptions that may apply to certain transfers in trust (Sec 1041(e)) and transfers of instalment obligations into a trust (Sec 453B(g)).