Something nobody's mentioned yet - if your rental losses are passive and exceed the $25,000 special allowance (or if your income is too high to qualify), those excess passive losses aren't "lost." They get suspended and carried forward indefinitely until either: 1. You have passive income from other sources to offset them against 2. You sell the property in a fully taxable transaction So the question of "which is better financially" depends on your long-term plans. If you'll eventually sell the property at a gain, having those suspended passive losses to offset the gain could be valuable.

I own several rental properties and have dealt with this exact issue. One thing to consider: if your AGI is under $100k, you can deduct up to $25k in rental losses against your ordinary income under the active participation exception, even though the activity is technically passive. But if you're trying to qualify as a real estate professional to treat ALL losses as non-passive, be prepared for potential IRS scrutiny. You need meticulous time logs to prove your 750+ hours.

Has anyone actually been audited on this issue? I'm in almost the exact same situation ($80k in architectural and engineering fees, project cancelled due to cost increases) and I'm trying to gauge the risk. I'm planning to sell next year and would love to include these costs in my basis.

I went through something very similar last year - $90k in architectural and structural engineering fees for a major home renovation that we abandoned when lumber costs tripled. I was nervous about including it in my basis, but my tax preparer was confident it qualified. The key distinction my CPA explained is that these aren't just "planning costs" - they're actual capital expenditures toward improving your property. The architectural plans have inherent value and are permanently tied to your specific property, even if you never execute the construction. I kept everything organized: the original contract with the architect, all invoices, bank statements showing payments, copies of the plans themselves, and even the permit applications we filed. When I sold the house, I included the full $90k in my adjusted basis calculation. One tip: if you're still unsure, consider getting a professional opinion from a tax attorney or CPA who specializes in real estate transactions. For a $100k expense, the consultation fee would be worth the peace of mind. In my case, including those fees saved me about $22k in capital gains taxes, so it was definitely worth pursuing.

Just a warning: I tried the trust route with my kids and it created a TON of family drama. My oldest felt like I was "controlling from the grave" (even though I'm very much alive lol). The middle kid was fine with it but the youngest felt insulted that I didn't trust them with money. Now the older two barely speak to me. If I could do it over, I'd just set clearer expectations upfront and involve them in the planning process. Maybe explain your reasoning and get their input on what restrictions would seem reasonable to them?

Great discussion here! As someone who went through this exact process two years ago, I'd suggest considering a hybrid approach. We started with the annual gift exclusion strategy but structured it as loans that convert to gifts upon meeting certain milestones (like completing a financial literacy course or maintaining employment for a full year). One thing I learned from our estate attorney is that the gift tax annual exclusion is per recipient, so if your kids are married, you and your spouse can potentially give $18,000 each to both your child AND their spouse, effectively doubling your annual gifting capacity per family unit to $72,000. Also, don't overlook 529 education savings plans if your kids might pursue graduate degrees or professional certifications. These have higher contribution limits and can be used for continuing education throughout their lives. You maintain control as the account owner but avoid the complexity of trust taxation. The family communication aspect mentioned by Angel is crucial. We found that being transparent about our goals (wanting them to build wealth, not dependency) actually made our kids more receptive to reasonable restrictions. They appreciated knowing we were trying to help them succeed long-term rather than just questioning their judgment.

Has anyone done the W-7 application at an IRS Taxpayer Assistance Center instead of mailing original documents? I'm wondering if it's faster.

Just wanted to share my recent experience with the W-7 process since I see a lot of helpful advice here! My husband needed an ITIN and we were really stressed about the whole thing. We ended up going the TAC route that Anastasia mentioned - definitely call ahead because they're booking appointments weeks out. The agent there was super helpful and caught a mistake we would have made on the form (we almost checked the wrong box for his reason code). One thing I didn't see mentioned - if your spouse has any previous U.S. tax history or SSN applications that were denied, make sure to bring documentation of that. The IRS agent told us it helps speed up their background verification process. The whole appointment took about 45 minutes, and we walked out knowing our application was complete and correct. Got the ITIN in about 6 weeks. Way less stressful than wondering if we mailed the right stuff!

Just be careful with using assessed values! I'm in California and our assessed values are based on Prop 13 which limits increases to 2% per year regardless of actual market appreciation. My client tried using the assessed value for inherited property and it was WAY below market value at the time of death. Would have resulted in a huge overtaxation when they sold!

Great question! I've dealt with this exact scenario multiple times. The key is establishing a "reasonable" basis using whatever documentation you can gather. Here are the methods I've successfully used: 1. **County assessment records** - While not perfect, they're acceptable when properly adjusted. Look at the assessment-to-sale price ratios in that area during the inheritance year. 2. **Zillow/online estimates** - Print out historical estimates from the inheritance date. While not ideal, I've seen these accepted when combined with other evidence. 3. **Real estate agent CMAs** - Many agents can pull historical comparable sales data going back 10+ years. This creates a solid foundation for your basis calculation. 4. **Estate tax returns** - Check if the estate filed Form 706. Even if not required, sometimes executors file anyway and include property valuations. The IRS understands that perfect documentation isn't always available for inherited property. Document your methodology clearly, show good faith effort to determine fair market value, and keep detailed records of your approach. I've never had an issue when the method was reasonable and well-documented. Time-wise, you might consider filing an extension if you need more time to gather supporting documentation properly.