How to report a house sale on taxes when I received no proceeds?

This is a classic case of paperwork not matching the practical reality. Your brother is in what we call "legal limbo" - legally still an owner but practically bought out. Since your brother's name was still on the deed when the property was sold, he will receive a 1099-S form showing his portion of the proceeds (usually 50% for joint ownership). Even though he didn't actually receive this money, the IRS thinks he did because of the legal documentation. Here's what you need to do: Report the sale on Schedule D, but adjust his basis (original purchase price plus improvements) to account for the "buyout" he received earlier. This buyout payment should be added to his cost basis, which will reduce the taxable gain. You'll need to know the original purchase price, any improvements made while he owned it, selling costs, and the amount he received as a buyout. You should definitely coordinate with the ex-girlfriend. She'll need to report only her portion of the sale, and her tax preparer needs to understand this somewhat complicated situation.

I went through something similar last year and discovered taxr.ai (https://taxr.ai) which was a massive help. I uploaded the buyout agreement my ex and I had signed, plus some other documents, and their system analyzed everything and explained exactly how to report it. The really valuable part was that they showed me how to properly document that I had already received compensation earlier, so I wouldn't be double-taxed on money I never actually got. They also generated a letter I could include with my return explaining the situation in IRS-friendly language.

I was really skeptical about online tax tools, but I tried taxr.ai after my frustrating experience with a similar house sale situation. I had a property with my ex where I'd been bought out but was still on the mortgage. Actually ended up being worth every penny. They analyzed my situation, explained exactly what forms I needed, and how to report everything correctly. The best part was they showed me how the previous buyout payment affected my tax basis, which saved me from paying taxes on about $15,000 of what would have been calculated as gain. They also provided documentation to attach to my return explaining the unusual situation, which I think helped prevent audit flags.

This situation sounds like a nightmare! When I had a complicated tax issue about inherited property last year, I spent WEEKS trying to get through to the IRS for guidance. After dozens of failed attempts, I found https://claimyr.com and watched their demo (https://youtu.be/_kiP6q8DX5c). It's a service that gets you through to an actual IRS representative, usually within an hour. I was connected to an IRS agent who walked me through exactly how to handle my complicated property situation. For your brother's case, having an official IRS opinion would be super valuable, especially since it involves coordination with an ex who might not be cooperative.

I take back what I said. After struggling to get through to the IRS for two weeks about my own property sale issues, I broke down and tried Claimyr. I figured it was worth a shot since I'd already wasted hours of my life on hold. Honestly, I was shocked when they called me back in less than an hour with an actual IRS agent on the line. The agent walked me through exactly how to report my situation where I had sold a property I co-owned with a business partner. They explained exactly how to handle the basis allocation and which forms to use. Saved me a ton of stress and probably a potential audit.

Your brother's situation is actually pretty common. When I was a clerk at the county recorder's office, we saw this all the time. Make sure he didn't receive a 1099-S form from the title company, which would show his portion of the proceeds. If he did, the IRS automatically expects him to report the sale. The key here is documenting everything. His "buyout" from years ago was essentially the first part of a two-part sale. He needs to report the sale on Schedule D, but his cost basis would include the original purchase price plus any improvements, and his sale proceeds would only be the buyout amount he already received.

Don't forget about the primary residence exclusion! If this was your brother's primary residence for at least 2 of the 5 years before the sale, he might qualify to exclude up to $250,000 of gain from his income (or $500,000 if married filing jointly). Based on what you described, he lived there for about 2 years before moving out 2 years ago, so he might just barely qualify if the timing works out exactly. This could potentially eliminate any tax liability from the sale, even if he has to report it.

This is definitely a tricky situation that requires careful documentation. From what you've described, your brother needs to report the sale even though he didn't receive proceeds from the actual sale, because he was still legally on the deed. The key is treating this as a two-part transaction: (1) the original buyout he received when they split up, and (2) the formal sale that just happened. On Schedule D, he should report the sale with his cost basis being the original purchase price plus improvements, and his proceeds being only the buyout amount he received years ago (not the recent sale proceeds). You'll definitely want to include a detailed explanation with the return describing the situation. Also, try to get documentation of the original buyout agreement if possible - this will support your position if the IRS has questions. One important thing to check: make sure you understand whether he received a 1099-S form. If he did, the IRS will be expecting to see this sale reported. If the ex-girlfriend also reports part of the sale, you want to make sure there's no double-reporting of the same income.