The info you provided leaves out much data that we would need to give you a proper answer. Additional questions could be asked but your answers may lead to more questions. Examples: Was fair rental being charged? if not, that might lead to the conclusion, that the rental should not have been reported at all by anyone and thus no depreciation taken. if it was rented at fair rental value did your child report the rental on his/her tax return? since the child paid all the expenses, did you deduct things like mortgage interest, taxes and other rental expenses on your return? That might be improper since you didn't pay them. How did you compute depreciation since you were co-owners with your child and only part of the house was being rented.
My suggestion would be for you and your child to confer with a tax pro to go over what each reported on their returns. They can ask whatever questions they feel are required so reporting of the rental and sale is proper. Maybe everything is fine maybe not. if not it's likely that amended returns and or form 3115 would be needed to correct the reporting for each year of the rental. Maybe gift tax returns should have been filed.
