Yes, the sale has to be reported. Your cousin would have to live in the property for 2 of the last 5 years ending at the sale date, to exclude the reporting.
However, you do get a stepped up basis, so there may be little to no gain to report depending on how much the home has appreciated in the between the time you inherited and the time you sold it.
Your cost basis for the inherited home is the fair market
value (FMV) at the date of the person's passing. This gives you a stepped up basis in
the property. The two of you will each enter your proportionate share of the
sales proceeds and FMV on your return.
Enter in the Investment section and choose
'Everything else' for type of investment sold.
Then enter 1/2 of the net proceeds from the
sale. Continue on to enter that the property was inherited and the date of the person's passing, and 1/2 of FMV in 2016. Continue to the
gain/loss computation (if any). The sale is reported on schedule D even if the
gain is 0.
Note: If you received a 1099-S for the sale be
certain that it is for your share only. If not, contact the issuer for a
corrected copy.
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