I'm dealing with this exact same situation right now and this thread has been incredibly enlightening! I sold my former primary residence that I converted to a rental in 2021, and like many of you, I qualify for the Section 121 exclusion but claimed depreciation during the rental period. What's really striking to me is how many people here have run into the same TurboTax issue - it seems like their software just isn't designed to handle these hybrid transactions properly. The consensus seems clear that you need both Form 8949 for the excluded capital gain AND Form 4797 for the depreciation recapture. I've been going back and forth with TurboTax support for weeks, and they keep insisting that Form 8949 alone is sufficient. But after reading everyone's experiences here, especially the explanations about "unrecaptured Section 1250 gain" being taxable regardless of the Section 121 exclusion, I'm convinced TurboTax is wrong. I think I'm going to try that taxr.ai analysis tool that several people recommended, and potentially switch to FreeTaxUSA if needed. The peace of mind of getting this right is worth way more than the hassle of switching software. Thanks to everyone who shared their experiences - it's so valuable to hear from people who've actually been through this process rather than just reading confusing IRS publications!

I'm a tax professional who specializes in real estate transactions, and I wanted to chime in here because this is indeed a complex area where even popular tax software can get it wrong. The consensus in this thread is absolutely correct - you need BOTH forms for a converted property sale like this. Here's the technical breakdown: **Form 8949** reports the capital gain portion of your sale, which qualifies for the Section 121 exclusion (up to $250K single/$500K married). This is the "personal residence" part of the transaction. **Form 4797** reports the depreciation recapture, which is treated as "unrecaptured Section 1250 gain" and is taxable at up to 25% regardless of your Section 121 exclusion eligibility. The key IRS regulation here is that Section 121 specifically excludes depreciation taken after May 6, 1997 from the capital gains exclusion. This means your $12,000 in claimed depreciation will be taxable even though your overall gain qualifies for exclusion. TurboTax's limitation in handling this split reporting is a known issue in our profession. The software tries to oversimplify what is essentially two different tax treatments for the same transaction. I've seen this exact scenario dozens of times, and the correct approach always requires both forms. If you're uncomfortable with the manual overrides needed in TurboTax, I'd recommend either consulting with a tax professional for this specific issue or switching to software that handles the split reporting correctly. The cost of getting professional help is usually much less than the potential penalties for incorrect reporting of depreciation recapture.

Has anyone noticed that TurboTax keeps raising the price of this audit protection every year??? It was like $30 when I first saw it and now it's way more. Seems so predatory especially when they push it with scary messaging about audits.

I appreciate everyone's insights here! As someone who's been dealing with basic itemized deductions for years, this discussion really confirms what I suspected - the audit protection is probably overkill for my situation. The suggestions about keeping good records and taking photos of receipts are spot on. I've actually started scanning everything into a folder on my computer right after I get receipts, which makes tax time so much easier. One thing that struck me from reading through all the comments is how the real value seems to be in understanding your actual audit risk rather than just buying insurance against it. The tools people mentioned for risk assessment and the service for actually reaching the IRS if needed sound way more practical than paying TurboTax extra money for something I'll probably never use. Think I'm going to skip the audit protection this year and put that money toward better record-keeping instead. Thanks everyone!

Has anyone here actually had their return questioned because of what they put in the occupation field? I'm stressing about this too but wondering if it's even something the IRS pays attention to.

I went through almost the exact same situation two years ago when I was on unpaid FMLA leave for most of the tax year. I was so worried about getting audited that I called three different tax preparers, and they all gave me the same advice - just use your regular job title. One thing that really helped put my mind at ease was learning that the IRS processes millions of returns where people's occupations don't perfectly match their income sources. Think about it - students who work part-time, retirees with occasional consulting income, people between jobs, etc. The system is built to handle these mismatches. I ended up putting "Senior Project Coordinator" (my actual title) on my return even though I had zero W-2 income that year. No issues whatsoever. The IRS cares way more about whether you're accurately reporting the income you did have rather than whether your occupation field makes perfect sense with your tax documents.

Make sure you respond to the 4464C letter if it requests any information! Mine asked me to verify some info about my employers and I ignored it thinking it was just informing me of a delay - my refund ended up being held for an additional 2 months because of this. If yours just says they're reviewing your return, then yeah, it's a waiting game unfortunately.

I went through this exact same situation earlier this year! The key thing to understand about Letter 4464C is that it's actually a positive sign - it means the IRS is actively working on your return, not that there's necessarily a problem. The income verification process happens when there's a discrepancy between what you reported and what they have on file, which is super common during tax season due to processing delays. Since your transcripts show no employer income reported yet, that's likely just a timing issue. The IRS processes millions of W-2s and it can take 6-8 weeks for everything to show up in their system. Your situation with the job change and income increase probably flagged their system for review, but once your employer data gets processed, it should resolve automatically. In the meantime, keep checking your "Where's My Refund" tool every week or so. The 60-90 day timeframe mentioned earlier is accurate, but many cases resolve faster once the employer data catches up. Hang in there - you should get your refund!

Here's what I learned when I went through this: the key thing to understand is how your LLC is being taxed. Single-member LLC taxed as disregarded entity = keep your sole prop EIN Multi-member LLC = new EIN required Single-member LLC electing corporate taxation = new EIN required I was a single-member LLC staying as a disregarded entity, so I kept my EIN. My accountant explained that in the eyes of the IRS, nothing had really changed from a tax perspective, just the legal liability structure changed.

One thing nobody's mentioned - if you're switching to an LLC with an S-Corp election (which can save on self-employment taxes), you ABSOLUTELY need a new EIN. I tried to use my sole prop EIN when filing Form 2553 to elect S-Corp status and got rejected. Had to get a new EIN first, then file the election. Just something to keep in mind if tax savings is part of why you're making the switch to an LLC!