"I will file with half of the cost, half of the proceed (my 1099-S amount), and all the depreciation I claimed in the past years."
As I understand it, you paid "ALL" the costs to include all the purchase price. Additionally, your son *NEVER* reported *ANYTHING* concerning this rental on *ANY* tax return he ever filed in his entire life. So if my understand is correct, you will claim ALL costs, and ALL proceeds. Since your son did not pay a penny for the property and did note make a penny off the property while it was rented, he will report *N*O*T*H*I*N*G* concerning this rental on his tax return. He has no reason to file a SCH E or a SCH D to report the sale of *ANYTHING* on his tax return.
"My son will file with half of the cost, half of the proceeds (the 1099-S under his name) and 0 depreciation. He will end up with a business lose and get some refund."
Then when the IRS catches this 24-36 months down the road, you will BOTH be audited and it will not be pleasant. Any refund your son may have gotten, will be wiped out by all the fines, penalties, back-taxes and interest on those back taxes he will have to pay back to the IRS.
" It will be OK as long as it is legal. "
There is nothing legal about reporting events on a tax return that did not occur. There's also nothing legal about *NOT* reporting "ALL" events that occurred by the tax filer for which those events *did* occur.
"There was no intention to share the profit."
Because you didn't, and now you've removed any and all possibility of doubt on that front. While your son was in college he was still your legal dependent (weather you actually claimed him as such or not.) and you provided him support.
"they do not know what to do"
That's no surprise. This time of year most of your walk-in IRS tax assistance offices and tax advocacy advocate offices are manned by seasonal temp hires. Ever notice how young they are? They have little to no tax experience. But if/when you get audited, it won't be a "temp" auditing you.
Now I myself am not a lawyer and definitely not schooled in tax law. But having been a landlord and dealing with rental property for the last 25 plus years, I do know what I'm talking about "on this particular issue."
If your son received a 1099-S for his half, then he needs to give it to you. There's no requirement that "HE" report anything, since he did not actually have any "skin in the game" on this rental so-to-speak.
