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The stepped up basis equal to the value of the property at the time of transfer is ONLY available when the property is transferred because of the death of the original owner.
Thus - the information you were given that the fair market value of the should be used as the basis to calculate the gain when the property is transferred as property settlement in the divorce - is not correct.
Sorry if you expected differently.
According to the IRS
- generally, there is no recognized gain or loss on the transfer of property between spouses, or between former spouses if the transfer is because of a divorce.
Similarly - the property basis for depreciation
and for capital gain calculations would not change.
See for reference IRS publication 504 - www.irs.gov/pub/irs-pdf/p504.pdf
page 20 - right column - Basis of property received. Your basis in property received from your spouse (or former spouse, if incident to your divorce) is the same as your spouse's adjusted basis. This applies for determining either gain or loss when you later dispose of the property. It applies whether the property's adjusted basis is less than, equal to, or greater than either its value at the time of the transfer or any consideration you paid. It also applies even if the property's liabilities
are more than its adjusted basis.