@M-MTax Thanks so much for your insight! A statement of explanation makes sense. I assume the have to paper file in that case? Perhaps I am also figuring the cost basis incorrectly?
For the purposes of making a simple calculation, let's assume the value of the home at date of death as well as today is $1,000,000. Let's also assume a mortgage amount of $400,000, and that each sibling's share is 20%. Wouldn't each of their cost basis as well as share of value at "sale" be $200,000 (20% of $1M)? So there is no gain or loss. Yet, at the end of the refi, the amount they are paid out and their 1099-S will be $120,000 (20% of [$1M-$400k]). Therefore, it would incorrectly show a loss of $80k on each of their returns.
