Another thing to consider - are you taking the Required Minimum Distributions (RMDs) correctly? The rules for inherited IRAs changed dramatically under the SECURE Act. If you inherited after 2020, you might be subject to the 10-year rule instead of being able to stretch distributions over your lifetime. If you're not taking the proper RMDs, you could face a 25% penalty on the amount you should have withdrawn but didn't. Might be worth checking if your withdrawals meet the requirements while you're sorting out this tax reporting issue.

I went through almost the exact same situation last year with my father's inherited IRA. The key thing that saved me was understanding that the 1099-R reporting doesn't automatically reflect rollovers - you have to manually indicate this on your tax return. Here's what worked for me: On Form 1040, I reported both 1099-R amounts on the "IRA distributions" line, but then on the "taxable amount" line, I only included the actual disbursement ($12,500 in your case). I attached a statement explaining that $215,000 was a direct rollover to an inherited IRA and therefore not taxable. The IRS accepted this without question. Make sure you keep detailed records of the rollover transaction - account statements showing the money going from the original IRA directly into your new beneficiary IRA. This documentation is crucial if you ever get audited. One tip: if you used different financial institutions for the original and new IRAs, the transfer might have been coded as a distribution + contribution rather than a direct rollover, which could explain why you're seeing it as taxable income. This can usually be corrected with proper documentation on your return.

Does your cousin happen to have owned more than 5% of any US company whose stock he sold? That's the only scenario I can think of where a non-resident might owe tax on capital gains - if they had a substantial ownership interest in a US corporation.

Just to add some clarity for anyone following this thread - the original poster's situation is straightforward, but I want to emphasize that non-resident tax rules can have surprising exceptions. For example, if your cousin had been a "dual-status alien" (resident for part of the year), or if he had any US business activities beyond just holding investments, the analysis would be completely different. Also, some states have their own rules for non-residents that can catch people off guard. The good news is that based on what you've described - Australian resident, no US presence, simple stock sales through a brokerage - you're definitely on the right track with just filing the 1040NR and Schedule OI. The capital gains sourcing rules are pretty clear in this case. One small tip: make sure you keep good records of the stock transactions even though you're not reporting them as taxable income. If the IRS ever questions the return, having documentation of purchase dates, sale dates, and amounts will help explain why the gains weren't subject to US tax.

One important thing nobody mentioned yet - there's a difference between Section 179 recapture and depreciation recapture. If you sell the vehicle for MORE than the original purchase price (rare but possible in today's market), that excess is actually capital gains, not ordinary income. Also, if your business use drops below 50% before the end of the recovery period, you'll trigger recapture regardless of whether you sell the vehicle. Worth keeping in mind if you're planning to shift the vehicle to personal use later.

I learned about Section 179 recapture the hard way. Took full depreciation on a $65k truck in 2023, sold it in 2024 for $58k thinking I made a smart move. My accountant had to explain that the entire $58k was considered ordinary income. My tax bill was MASSIVE. Nobody talks about the financing angle either. I was still making payments on a vehicle I no longer owned while having to pay taxes on the recaptured amount. Double whammy!

Has anyone mentioned the impact on the remaining partners? When you distribute property to one partner, it can change the capital account balances of everyone else relative to their profit/loss sharing percentages.

This is exactly the kind of complex partnership tax situation where having proper documentation is crucial. I went through something similar when we distributed a duplex property to one of our partners last year. One thing I'd add to the excellent advice already given - make sure you document the fair market value determination thoroughly. The IRS can challenge your valuation, especially if there's a significant difference between book value and FMV. We got a formal appraisal even though our distribution was at book value, just to have solid documentation. Also, don't forget that the departing partner will need to adjust their basis in any remaining partnership interest (if they have one) by the amount of the distribution. And you'll want to make sure your partnership agreement clearly addresses how this type of distribution affects voting rights and management responsibilities going forward. The K-1 reporting is straightforward once you understand it, but the footnote requirements are strict. Include everything - original purchase price, purchase date, total depreciation taken, remaining basis, and FMV at distribution. The IRS wants to see a clear paper trail for property distributions.

I went through this exact same situation last year and can confirm the advice about amending your 2023 return is spot on. One thing to add - make sure you keep really good records of your non-deductible contribution confirmation from your IRA custodian (like Fidelity, Vanguard, etc.). When you do the conversion part later, you'll need to show that these funds have already been taxed, so the conversion should be essentially tax-free. The Form 8606 creates a paper trail that proves your basis in the traditional IRA. Without properly filing it for 2023, you could end up paying taxes twice on the same money when you convert. Also, if you're planning to do backdoor Roth conversions regularly, consider setting up a system to track this annually. It becomes much easier once you have the process down and are consistent about filing Form 8606 each year you make non-deductible contributions.

I've been following this thread closely since I'm in a similar situation with my backdoor Roth IRA. One thing I haven't seen mentioned yet is what happens if you discover you need to amend multiple years of returns for missing Form 8606 filings. I realized I've been making non-deductible IRA contributions for the past 3 years but never filed Form 8606 for any of them! Now I'm worried about how to unwind this mess and get my basis tracking correct before doing any conversions. Has anyone dealt with amending multiple years at once? I'm wondering if I should tackle them one year at a time or if there's a more efficient approach. Also concerned about whether the IRS will hit me with penalties for the late Form 8606 filings, even though my actual tax liability didn't change since these were non-deductible contributions. Any advice would be really appreciated - this thread has already been super helpful for understanding the process!