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Yes you MUST report the sale even if it is a non deductible loss.
if you got a 1099-S, you need to report the sale though the loss will not be deductible. the reason is that the IRS has proceeds but doesn't know basis.
What was the purpose of the purchase and how was the house used? If it was investment property, the capital loss is deductible. If it was personal use property, including residence for family, it is not deductible.
Here's what IRS Publication 523 (page 16) says about reporting the sale, assuming the property was not used for business or investment purposes:
You need to report the gain if ANY of the following is true.
• You have taxable gain on your home sale (or on the residential portion of your property if you made separate calculations for home and business) and don’t qualify to exclude all of the gain.
• You received a Form 1099-S. If so, you must report the sale even if you have no taxable gain to report.
• You wish to report your gain as a taxable gain even though some or all of it is eligible for exclusion. You
may wish to do this if, for example, you plan to sell another main home within the next 2 years and are likely
to receive a larger gain from the sale of that property.
If you choose to report, rather than exclude, your taxable gain, you can undo that choice by filing an amended return within 3 years of the due date of your return for the year of the sale, excluding extensions.
If NONE of the three bullets above is true, you don’t need to report your home sale on your tax return.
https://www.irs.gov/pub/irs-pdf/p523.pdf
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