One important thing to add to this discussion - the "not-for-profit" determination isn't just about your rental income and expenses. The IRS also looks at how you operate the property and whether you're making business-like decisions to improve profitability. For example, if you're consistently renting below market rate without good reason, that could hurt your case. Same if you're not actively marketing for tenants when the property is vacant, or if you're not making necessary repairs that would allow you to charge higher rent. Since you mentioned you inherited this property and are running at a loss, make sure you can document any efforts you've made to improve the situation - raising rents to market levels, improving the property to attract better tenants, consulting with local property managers about optimal pricing, etc. The IRS wants to see that you're actively trying to turn things around, not just passively collecting whatever rent comes in while claiming losses year after year. Also, inheritance situations can actually work in your favor sometimes because you have a legitimate reason for initially operating at a loss (paying inheritance taxes, bringing the property up to rental standards, learning the business), as long as you can show you're working toward profitability.

This thread has been incredibly helpful! I'm in almost exactly the same situation as Dmitry - inherited a duplex that's been running at losses for about 18 months now. Reading through everyone's responses, I realize I've been making some critical mistakes in how I document my rental activities. Based on what everyone's shared, it sounds like the key isn't avoiding losses entirely (which might be impossible in the short term), but rather proving you're genuinely trying to operate as a business to generate profit. I've been way too casual about record-keeping and haven't been documenting my efforts to improve the property's profitability. Starting this week, I'm going to implement some of the suggestions here - creating a business activity log, getting at least one formal rental market analysis, and properly documenting all my improvement efforts. The inheritance angle that Zoey mentioned gives me some hope too, since I do have legitimate reasons for the initial losses. One question for the group - for those who've gone through IRS scrutiny on rental properties, how far back do they typically look when evaluating your "profit motive"? I'm wondering if I need to go back and reconstruct documentation for activities I did last year but didn't properly document at the time.

Don't forget that if you're using your laptop for a legitimate business, you can also deduct software costs! I deduct my Adobe Creative Cloud subscription at 100% since I only use it for my design business, even though my laptop itself is only 70% business use.

Yes, absolutely! Antivirus software and cloud backup services used to protect business data are legitimate business expenses. If you use them exclusively for business files, you can deduct 100% of the cost. If it's mixed use (protecting both business and personal files), then you'd apply the same percentage method as your laptop. Cloud storage is especially important to track since many 1099 contractors need it for client file sharing and backup. Services like Dropbox Business, Google Workspace, or Microsoft 365 subscriptions are all deductible when used for business purposes. Just make sure you can justify the business use if questioned - having separate folders for client work or using business-specific features helps demonstrate legitimate business use. Also consider deducting any business-related apps or software licenses you purchase for your laptop, even small ones. Things like project management apps, invoicing software, or industry-specific tools can add up to meaningful deductions over the year.

As a workaround, since both forms report income, could you just enter it as 1099-MISC? The tax owed should be the same either way since self-employment tax calculations wouldn't change, right?

I had the exact same issue last year! The key is looking under "Self-Employment Income" rather than searching for "1099-NEC" directly. In TaxAct, go to Federal → Income → Self-Employment Income, and you should see an option to add business income or self-employment income. When you select that, it will ask what forms you received, and 1099-NEC should be listed there. Don't worry about not having a formal "business" - freelance and contractor work counts as self-employment for tax purposes. You can just use your own name as the business name if prompted. The $23,450 you mentioned definitely needs to go on Schedule C (which TaxAct will generate automatically), and you'll also owe self-employment tax on that income, so make sure you're prepared for that additional tax liability beyond regular income tax.

Has anyone here used TurboTax when they had a year with workers comp? Did it handle the situation correctly or did you need to make adjustments?

I went through this exact same situation two years ago and it was really confusing at first! The negative W2 wages are completely normal - it's just how payroll systems handle the transition from regular taxable wages to non-taxable workers comp benefits. What probably happened is your employer initially processed some payments as regular wages early in the year, then had to "reverse" or correct those entries once your workers comp status was finalized. The negative numbers you're seeing are essentially the system's way of backing out those wages so they don't incorrectly appear as taxable income on your final W2. Your actual W2 at year-end will show the correct amount of taxable wages you earned (which sounds like it would be zero if you've been on workers comp the entire year). Don't worry about having to explain negative numbers to the IRS - they'll never see those paystub details, just the final corrected totals on your W2 form.

I've been following this thread closely because I'm dealing with the exact same CP32A situation. What really strikes me is how many of us are in this boat - it seems like the IRS sent out a massive batch of these notices all at once for stimulus payments that were issued months or even over a year ago. One thing I wanted to add that hasn't been mentioned yet - if you're planning to use Form 3911, make sure you select the correct reason code. There's a specific box for "Economic Impact Payment" that's different from regular tax refunds. I initially filled it out wrong and had to resubmit, which cost me an extra few weeks. Also, for anyone considering the third-party services mentioned in this thread, I'd suggest trying the free options first (Form 3911, TAS, persistent phone calling) before paying for help. The IRS will eventually sort this out, it's just a matter of patience and persistence. The most frustrating part about all this is that we're essentially being penalized for the IRS's own system failures. We did everything right by claiming the Recovery Rebate Credit when we didn't receive our payments, and now we're stuck in bureaucratic limbo trying to prove we never got money that was supposedly sent to us. Thanks to everyone who's shared their experiences - it's been really helpful to know what to expect!

I'm in the exact same situation and this thread has been incredibly helpful! I received my CP32A notice two weeks ago for the first stimulus payment that I never received and already claimed as a Recovery Rebate Credit on my tax return. After reading everyone's experiences, I've decided to pursue multiple strategies simultaneously. I'm doing the early morning phone calls (thanks for the 7:01am tip, Oliver!), and I've also prepared Form 3911 with the correct "Economic Impact Payment" reason code as Mikayla mentioned. One thing I wanted to add - I called my local IRS office directly instead of the national number, and while they couldn't handle the CP32A issue specifically, they were able to confirm that my tax return is currently on hold pending resolution of this stimulus payment discrepancy. At least now I know why my refund status hasn't updated in weeks. The representative suggested that I might also be able to visit a local Taxpayer Assistance Center in person if the phone and mail routes don't work out. They require appointments, but she said they can sometimes resolve these payment trace issues more quickly than the mail-in process. Thanks to everyone for sharing your experiences and strategies. It's reassuring to know this is resolvable, even if it requires persistence and patience!