No, it would not be right. If all three were on the deed, then all three are owners of the property. Unless there is contrary evidence, each of you owned an undivided interest in one-third of the home. Upon its sale, because there was a gain, each of you would be responsible for reporting your respective pro-rata share of that gain.
The party that lived in the home may be able to claim a capital gain exclusion provided the requirements for such exclusion have been met. As per the IRS, those requirements are as follows:
In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.
Sale of a Home
Did you receive a 1099-S in connection with the sale? If yes, are all parties listed on the 1099-S? The 1099-S document is generally filed with the IRS, and therefore, the party(ies) on that document will need to report the sale of the home on their return. If only one party is listed on the 1099-S, and given what you have included in your post, that party would be considered to have nominee income. Pursuant to IRS guidance regarding nominee income (income received in your name but that belongs to someone else) such person must file a 1099 with the IRS and provide a copy of same to the other owner(s). In other words, the other owners would get a 1099 reflecting their pro rata share of the sale proceeds. Below is the IRS guidance on this issue.
f you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts allocable to each. You must also furnish a Form 1099 to each of the other owners. File the new Form 1099 with Form 1096 with the IRS Submission Processing Center for your area. On each new Form 1099, list yourself as the “payer” and the other owner as the “recipient.” On Form 1096, list yourself as the “Filer.” A spouse is not required to file a nominee return to show amounts owned by the other spouse. The nominee, not the original payer, is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.
The above information was obtained from the following link:
General Instructions for Certain Information Returns (2022)
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