Received a 1099-S from a title insurance company as a result of a court settlement to clear a title. How do i report this settlement on my taxes?

Forum|Forum|3 months ago
March 15, 2026
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My aunt died in 2020 and in 2021 her house was sold way below market value. The proceeds of the sale were included in our inheritance of her estate. However, my aunt's estate lawyer, who sold the house, did not actually have the authority to sell the property, but that was not discovered during the buyer's title search. When the buyer went to resell the property in 2024, the title was not clear. The heirs and the buyer went to court and in 2025 the heirs received a settlement by agreeing not to block the title transfer to the buyer. I received a 1099-S from the buyer's title transfer company, showing the closing date of the sale in 2025, when the title was cleared. How do I report this income on my taxes?

ReneV4

Level 6

This is a unique situation where a legal dispute delayed the "official" sale of the property until 2025. Since you received a Form 1099-S, the IRS expects you to report it, so you are doing the right thing.

Normally, inherited property uses a "step-up" basis to the Fair Market Value (FMV) on the date of your aunt's death. However, because you already received a portion of the proceeds from the initial (unauthorized) sale in 2021, most, if not all, of your basis was likely already accounted for during that tax year.

If the heirs paid legal fees to go to court and resolve this dispute, you genereally cannot deduct those fees as ordinary expenses. Instead, the tax rules require that legal fees paid to defend a title to property must be capitalized and added to your basis in the property. By adding these legal costs to your basis, you will likely reduce your taxable gain from the settlement.

Here is how to enter your Form 1099-S in TurboTax Since this isn't a standard home sale, follow these steps:

Go to Income, click the drop down arrow to the right of Investments and Savings
Select Stocks, Cryptocurrency, Mutual Funds..., by clicking Start
Select +Add Investments, then Enter a different way
Next, select the Other 1099-S box (with an image of a house), Continue
Type in name of issuer of you Form 1099-S, Continue
Select Other from the drop down menu
Select I inherited it from the drop down menu
Type in, "Settlement Of Inherited Property Title" as description
For Cost basis, if you used the step up basis in 2021, your basis for this transaction is only the legal fees you paid. If you did not report the sale, you would use the FMV at the date of death, plus the legal fees
For date acquired, use the date of your aunt's death and for date sold, use the date on your Form 1099-S