How to properly report the sale of a house on taxes when you don't receive any proceeds?

So if the house was originally purchased for $200,000 (with each person owning 50%) and then sold for $300,000, would his basis still be $100,000 (his half of original cost) even though he only got $15,000? Seems like he would show a huge loss on paper?

You're right to question that. His basis would indeed be his portion of the original purchase price (plus any capital improvements he contributed to). The $15,000 he received would be considered his "proceeds" from disposing of his interest. In your example, if his basis was $100,000 and he received $15,000, he would report a capital loss of $85,000. However, since this was his primary residence, there are additional considerations. If he lived there for at least 2 of the 5 years before his interest was effectively sold (when he took the buyout), he might qualify for partial exclusion of this loss under the Section 121 exclusion rules.

Did they help you figure out how to coordinate with your ex? That's the part I'm most nervous about...documenting everything on my own side seems manageable but getting my ex to cooperate might be difficult.

I've never heard of this service. Does it explain how the IRS handles the reporting when only one person gets proceeds from the sale but multiple names are on the deed? My tax software doesn't have clear guidance on this.

I actually found they provided a template letter I could send to my ex explaining exactly what information I needed from them to properly report the sale. It made the conversation much less awkward because it was just about the specific numbers needed for tax purposes. For handling the reporting split, they guided me through exactly how to document that I had already received my portion of the proceeds years earlier through the buyout, even though the official sale just happened. Their system highlighted the specific IRS rulings that cover this situation and showed me where to document everything on Schedule D to avoid audit flags.

How does this actually work? Do they just call the IRS for you? I'm confused how a third party service can get you through faster than calling yourself.

Sounds like a scam. How would they possibly get you through faster than anyone else calling the IRS directly? The IRS queue is the same for everyone.

They don't get you through faster than the regular IRS queue - they just wait in it for you. You don't have to sit there with your phone on speaker for hours. You give them your phone number, and their system calls the IRS and waits on hold. When an actual IRS agent picks up, their system connects the call to your phone so you're talking directly to the IRS. It's not about cutting the line - it's about not wasting your time listening to hold music. You can go about your day, and then just pick up when they connect you with an agent who's already on the line.

Do you know if he would get the 1099-S directly or would it only go to his ex since she's the one who actually handled the sale and got the proceeds?

If his name was on the deed at the time of sale, the closing company should have sent the 1099-S to both parties. They're required to report to everyone listed on the property records. Each person would receive a 1099-S showing the full sale amount (not divided). This is exactly why your brother needs to properly document on his Schedule D that he previously sold his interest and received compensation. Otherwise, the IRS computers will think he received half the proceeds from the 2024 sale.

Yes, this is an important consideration! If he met the ownership and use tests (owned and lived in the home as his main residence for at least 2 out of the 5 years before the interest was disposed of), he could potentially exclude up to $250,000 of gain. In this case, it sounds like he might have taken a loss rather than a gain, but the timeline matters. The 5-year lookback period would start from when he effectively "sold" his interest (the buyout), not the final sale date of the house. So if he lived there for at least 2 years before accepting the buyout payment, he would qualify for the exclusion if there had been a gain.