Michele Anthony - Page 7

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          generally is equal to the taxpayer’s cost of the property,                  
          adjusted as required under section 1016.  The basis of community            
          property transferred pursuant to a divorce depends upon the                 
          nature of the property division.5  If the division is a                     
          nontaxable one, e.g., an equal division of strictly community               
          property, the transferee spouse receives each asset with a basis            
          equal to its basis to the community prior to division.  See                 
          Carrieres v. Commissioner, 64 T.C. 959, 964-965 (1975), affd. 552           
          F.2d 1350 (9th Cir. 1977).  A taxable division causes different             
          results.  A taxable division occurs either from an unequal                  
          division or from an exchange of separate property for virtually             
          all of the other spouse’s community property in an otherwise                
          equal division.  In these situations, where the transferee spouse           
          receives a whole asset, she receives it with a basis equal to               
          one-half the basis prior to division plus one-half the fair                 
          market value of the property.  See id.  This is so because one-             
          half of the property is deemed to have been sold by the                     
          transferor spouse to the transferee spouse at fair market value.            
          The transferee spouse keeps her original basis in her one-half              
          interest while receiving a cost basis for her spouse’s one-half             

          5Sec. 1041 is not applicable in this case because the                       
          transfer of Mr. Anthony’s interest in the Compton residence                 
          occurred prior to July 18, 1984, and nothing in the record                  
          indicates petitioner and Mr. Anthony elected to have sec. 1041              
          apply to the post-1983 transfer.  See Deficit Reduction Act of              
          1984, Pub. L. 98-369, sec. 421, 98 Stat. 793.                               

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