Q. Do I have to show some sort of proof for the cost basis?
A. No, not at the time you file your tax return. That comes later, if at all, if you are "audited".
Q. How does the IRS know that I'm not making it up?
A, They don't. If they suspect, they'll ask. Don't try to attach proof; it'll foul up your e-fing and will,most liekly, be ignored.
Q. Is there another form or something to show where the difference is coming from?
A. Usually not. Several years ago, the IRS implemented changes to the form 1099-B to make stock brokers report cost basis/capital gains for most stock and mutual fund sales. But, that has not yet happened for real estate sales.
