What if a spouse conveys his or her interest in real estate before, or even during, the divorce?

The I.R.S. considers all property transfers between a husband and a wife that occur within one year of the divorce as nontaxable. If the husband, for example, owns the house with his wife and then sells it to her at divorce, the transfer of the property is not taxed. Here is an example of something that looks like a taxable event that the IRS has opted not to tax.

However, the tax basis -- that is, the cost of the property for tax purposes -- passes with the transfer. For example, if a couple purchase a $100,000 house as an investment and in divorce it passes to the husband, the tax basis is $100,000 regardless of any other financial arrangements made by the couple. He owns the house as if he had paid $100,000 for it as a single person.