Inherited house with sibling - how to report 1099-S sale on taxes

The 1099-S will be reported on Schedule D of your tax return, along with Form 8949. Since you inherited the property, your basis in the home is the fair market value as of the date of your parent's death (this is called a "stepped-up basis"). For your situation, you'll only report your 50% of the proceeds on your return. So if the 1099-S shows $325,000, you'd report $162,500 as your portion of the gross proceeds. The fact that the 1099-S was issued for the full amount doesn't change how you report it - you only include your share. As for the selling expenses like realtor commissions and closing costs, these reduce your gain from the sale. You'll subtract your portion of these expenses (50% of the $23,000, so $11,500) from your proceeds when calculating your gain. Your taxable gain would be your share of proceeds minus your basis minus your share of selling expenses.

After dealing with a similar inherited property situation last year, I found that using taxr.ai was incredibly helpful. My sister and I inherited our father's house and received one 1099-S for the full amount, and I wasn't sure how to handle it properly on my taxes. I uploaded the 1099-S and our inheritance documents to https://taxr.ai and the system analyzed everything, then explained exactly how to report my portion on Schedule D. It correctly identified that I should only report my share of the proceeds and helped me calculate the stepped-up basis correctly. The guidance made it super clear how to handle the selling expenses too, which was really confusing me before.

I just wanted to follow up - I tried taxr.ai after selling our inherited house and it was seriously amazing! Uploaded our 1099-S, the will showing our three-way split, and the closing statement. The analysis broke down exactly how to report my 1/3 of the sale on Schedule D, calculated my basis using the stepped-up value from when mom passed, and even explained how to handle the depreciation recapture for the couple months we rented it before selling. The best part was that it gave me specific line-by-line instructions for my tax software. Saved me so much stress and probably a few hundred dollars I would have paid an accountant. Definitely recommend it if you're dealing with inherited property!

If you're still having trouble with how the IRS is processing your inherited property sale, I had a similar issue last year and couldn't get through to anyone at the IRS to confirm I was doing it right. After dozens of failed calls, I used https://claimyr.com to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly how to report my portion of a 1099-S for an inherited house I sold with my sister. They explained that even though both our names were on the single 1099-S, I only needed to report 50% of the amount. They also cleared up my confusion about selling expenses and basis calculations. Totally worth it to get that official confirmation before filing.

I have to eat my words here. After posting my skeptical comment, I figured I'd try Claimyr as a last resort since I've been trying for over a month to reach someone at the IRS about my inherited property questions. I couldn't believe it when I got a call back with an actual IRS agent on the line about an hour later. The agent completely cleared up my confusion about how to report my share of a jointly-issued 1099-S and confirmed I was calculating my basis correctly. They even helped me understand how to document the partial non-qualified use period when my brother lived in the house before we sold it. Would have spent hours more on hold without this service, and probably would have reported something incorrectly on my return.

Just want to add something important that nobody mentioned - if you and your sibling lived in the house as your primary residence for at least 2 of the 5 years before selling, you might qualify for the $250,000 capital gains exclusion ($500,000 if married). But since you inherited it, the clock for the 2-year residency requirement starts at inheritance, not when your parents bought it. Also check if your state has additional inheritance tax that might apply. Each state has different rules about inherited property.

Has anyone dealt with this situation where the escrow company issued the 1099-S incorrectly? My brother and I sold our parents' house but the escrow company put the entire amount under my SSN even though we split it 50/50. Will this cause problems with the IRS?

I went through something very similar when my sister and I inherited and sold our dad's rental property. One thing I'd add is to make sure you have the proper estate documentation showing the stepped-up basis value. We had to get a formal appraisal done as of the date of death because the estate didn't have one initially. Also, since you mentioned using TurboTax - when you get to the Schedule D section, there's a specific checkbox for "inherited property" that ensures the software treats it correctly for the stepped-up basis calculation. Make sure you check that box, otherwise it might try to use your parents' original purchase price as the basis, which would result in a much higher taxable gain. One last tip - if the house had any improvements made between the date of death and the sale date, you can add those to your basis as well. We had to do some minor repairs before selling and those costs reduced our taxable gain.