I went through something very similar after Hurricane Ian damaged my roof. A few things that might help based on my experience: First, you absolutely need to document everything now if you haven't already. Take photos of any remaining damage, keep ALL receipts from the roofing company, and try to get written estimates from contractors (even if you've already done the repairs). The IRS will want to see proof that the damage was specifically from the federally declared disaster. For the fair market value calculation, using your repair costs as a baseline is reasonable, but consider getting at least one professional estimate of what your home's value decrease was. Some insurance adjusters will do this for a fee even if you're not filing a claim, and it gives you more credible documentation. One thing that caught me off guard - make sure you're claiming this in the right tax year. Since it was a federally declared disaster, you can choose to claim it on last year's return (by amending) or this year's return. If your income was lower last year, that might give you a better deduction after the 10% AGI reduction. Also, don't forget about related expenses like temporary repairs, tarps, or cleanup costs - these can sometimes be included in your casualty loss calculation too.

Based on your situation, here are a few key points that might help with your Form 4684: Since you mentioned you've never filed a tax return before, you'll want to be extra careful with documentation. The IRS tends to scrutinize first-time filers more closely, especially for significant deductions like casualty losses. For the fair market value calculation, your $27k repair cost is actually a solid starting point. The IRS Publication 547 specifically mentions that repair costs can be used as evidence of decreased fair market value, as long as the repairs only restore the property to its pre-damage condition (which sounds like your case with the roof). One important thing others haven't mentioned - make sure you get a copy of the official FEMA disaster declaration for your area. You'll need the disaster declaration number for your Form 4684, and having this documentation helps establish that your loss qualifies for the special disaster provisions. Also, since your income is $110k, definitely run the numbers on claiming this loss on your 2023 return (amended) versus your 2024 return. If your 2023 income was lower, the 10% AGI threshold would be smaller, potentially giving you a larger deduction. Don't forget to keep detailed records of everything - the IRS has up to 3 years to audit casualty loss claims, and disaster-related deductions sometimes get extra scrutiny.

This is such a complex area that catches many real estate investors off guard! I went through something similar when we converted one of our long-term rentals to short-term last year. One thing I learned the hard way is that you need to be really strategic about timing these conversions. If you're close to the end of the tax year and your wife is borderline on the 750-hour requirement for just the long-term rentals, you might want to delay the conversion until January to preserve your real estate professional status for the current year. Also, don't forget about the recordkeeping requirements for substantiating material participation. The IRS expects contemporaneous records, not reconstructed logs. I'd recommend setting up a system now before you get too deep into the year. One more consideration - if you're planning to do more cost segregation studies on the remaining long-term rentals, maintaining real estate professional status becomes even more valuable since those accelerated depreciation deductions can offset other income. Losing that status could significantly impact your tax savings. Have you run the numbers on the total tax impact of potentially losing real estate professional status versus the additional income from short-term rentals? Sometimes the math doesn't work out as favorably as expected once you factor in the passive loss limitations.

Great question about the documentation detail! From my experience dealing with an IRS audit on real estate professional status, they want to see very specific logs that include: 1. Date and time of each activity 2. Property address or identifier 3. Specific activity performed (not just "property management") 4. Duration in hours/minutes 5. Any third parties involved (contractors, tenants, etc.) For example, instead of "Property maintenance - 3 hours," document: "Property A - Met with HVAC contractor for furnace inspection, obtained 2 repair quotes, scheduled follow-up appointment - 3.5 hours" The IRS agent specifically told me they look for activities that demonstrate you're actually running a business versus just collecting rent checks. Marketing activities, financial analysis, vendor management, and hands-on property improvements carry the most weight. One tip that saved me: take photos of yourself doing the work when possible. I had pictures of myself painting, meeting with contractors, etc. The IRS agent said visual documentation really strengthens your case since it's hard to fabricate after the fact. Also keep all related emails, texts, and receipts with timestamps. If you're coordinating a repair via text at 9 PM on a Sunday, that's strong evidence of active management that goes beyond normal business hours. The $15K tax hit you calculated sounds about right - passive loss limitations can be brutal when you have significant depreciation from cost seg studies.

Based on all the helpful information shared here, I wanted to add a few practical tips for anyone else dealing with multiple K-1s and box 13 codes: 1. **Create a spreadsheet** to track all your K-1s and their box 13 items by code. This helps you see the big picture, especially for Form 8990 calculations where you need to aggregate business interest from all sources. 2. **Request partnership statements early** if they're missing. Don't wait until you're preparing your return - reach out to the partnerships in January/February to get clarification on any box 13 codes, especially code L items that might have exceptions. 3. **Keep good records** of any suspended deductions. Even though code L items are generally not deductible now, if TCJA provisions expire in 2026, you'll want documentation of what was suspended in prior years. 4. **Consider the timing** of your filing if you have partnerships that historically issue corrected K-1s. Sometimes it's worth waiting an extra week or two rather than dealing with amended returns later. The tools mentioned in this thread (taxr.ai for analysis, Claimyr for IRS contact) seem helpful based on others' experiences, but always verify any guidance with official IRS publications or a qualified tax professional when dealing with complex partnership taxation issues.

This thread has been incredibly helpful - thank you everyone for sharing your experiences! I'm dealing with my first year of K-1 forms and was completely lost on the box 13 codes. After reading through all the responses, I have a much clearer understanding now. It sounds like code AE definitely requires Form 8990 for the business interest limitation calculation, and code L items are mostly suspended under TCJA (though worth checking partnership statements for any exceptions). I'm curious - for those who have used Form 8990 before, how complicated is it to complete? I'm trying to decide if I should attempt it myself or just bite the bullet and hire a tax professional. My code AE amount is around $8,000 from one partnership, and I don't have any other business interest income or expenses to complicate things. Also, has anyone found good IRS resources that explain the Section 163(j) business interest limitation in plain English? The official instructions are pretty dense and I'd love to understand the mechanics better before diving into the form.

Anyone know if leasing is better than buying for tax purposes? I've heard conflicting things.

One thing I don't see mentioned here is the importance of proper business purpose documentation. I made the mistake of thinking a basic mileage log was enough, but during an audit the IRS wanted to see detailed records of WHY each trip was business-related, not just where I went. For Section 179 vehicle deductions, you need to be extra careful about proving legitimate business use. I started keeping a simple voice memo app on my phone to record the business purpose of each trip right when it happens - "visiting client Johnson to review quarterly reports" or "picking up supplies for the Peterson project." Takes 5 seconds but creates a contemporaneous record that's much more defensible than trying to recreate it later. Also, don't forget that if you're using the vehicle for both business and personal use, you need to track EVERYTHING - not just the business trips. The IRS will want to see your total mileage to verify your business use percentage is accurate.

This is a great question that many multi-member LLCs face! You absolutely can structure disproportionate distributions, but there are a few key things to get right. For your health insurance situation, you'll want to be careful about how you handle this tax-wise. If the LLC pays for health insurance premiums for some partners but not others, those premiums are typically treated as guaranteed payments to the covered partners (making them taxable income to those individuals). The cleaner approach might be to reimburse partners for their premiums through adjusted distributions as you mentioned. For Partner 3 redirecting funds to Partner 4, the simplest approach is usually to have the LLC make its regular distributions according to ownership percentages, then Partner 3 can gift their desired amount to Partner 4 afterward. This keeps the tax reporting straightforward. Make sure your operating agreement includes language like "distributions may be made in amounts and at times determined by majority/unanimous vote of members, regardless of ownership percentages" or similar wording that fits your decision-making structure. Most importantly, document everything! Keep written records of all member approvals for non-proportional distributions. This protects you if there are ever questions from the IRS or between partners down the road.

Just want to add another perspective on the health insurance piece - we handled this by having our LLC reimburse partners for their actual health insurance costs rather than paying the premiums directly. This way it shows up as a business expense for the LLC and reduces the taxable income allocated to all partners proportionally, rather than creating guaranteed payment income for just the insured partners. At year-end, we adjust distributions to account for these reimbursements so everyone ends up with their intended net amounts. Partners who got health insurance reimbursements receive smaller cash distributions, while others get larger ones. This approach has worked well for us and keeps the tax treatment simpler since there are no 1099s to deal with. Your operating agreement should definitely include flexible distribution language as others mentioned. We use wording that allows distributions "in such amounts and proportions as determined by unanimous consent of the members, which may differ from membership percentage interests." Having this flexibility built in from the start saves you from needing amendments later.