I am assuming that they are going to split the proceeds between them. And that each sibling will get 50% of the proceeds.
The sibling who lived in the house, if for two years, will get the benefit of excluding the proceeds from the sale from capital gains taxes.
Both siblings will enter the 1099-S on their tax returns with the full amount of the proceeds. In addition, each sibling will enter 1099-S with a negative 50% of the amount on the 1099-S. That means each will end up being taxed for 50%, But one sibling will not be entitled to the $250,000 exclusion from capital gains taxes.
