I'm confused about something - doesn't the 2-year ownership and use test apply regardless of this non-qualified use issue? Like if you move back and live there for 2 years before selling, wouldn't you qualify for the exclusion anyway? I've been trying to understand this for my own situation.

This is a really complex situation, and I appreciate everyone sharing their experiences and insights. As someone who's dealt with similar Section 121 exclusion questions, I want to emphasize how important it is to get this right given the significant tax implications. From what I understand about your situation, the key issue is whether the 17 years your brother-in-law lived there would count as "non-qualified use." Based on the responses here, it sounds like since you weren't charging rent and this was a family arrangement, those years likely wouldn't count against you under the non-qualified use rules. However, given that you're looking at a $675k gain with only $500k in potential exclusion, I'd strongly recommend getting a second opinion from a tax professional who specializes in real estate transactions. The difference between 25% exclusion and full exclusion that's been discussed here could save you tens of thousands of dollars. Also, make sure to document everything about the arrangement with your brother-in-law - even informal family arrangements should be properly documented in case the IRS has questions later. The fact that he paid property taxes directly actually seems to support that this was a family care arrangement rather than a rental situation.

Call early morning. Avoid Mondays. Have all documents ready. ID verification takes 15-20 minutes once connected. Keep letter handy. They'll ask specific questions from current and previous returns. Verification is immediate. Processing takes 9-21 days after successful verification. Don't call the general IRS line. Use only the specific TPP number others mentioned. Good luck.

I went through this exact same situation in February! The 800-830-5084 number is definitely correct for Letter 5071C verification. Here's what worked for me: I called at 8:15 AM on a Wednesday and only waited about 35 minutes. Have your Social Security card, driver's license, the verification letter, your 2023 tax return, and your 2024 return (if filed) all spread out in front of you before you call. They asked me about my filing status, prior year AGI, current year withholdings, and some specific deduction amounts. The whole verification took maybe 10 minutes once I got through to an agent. My refund was deposited exactly 12 days later. Pro tip: if you get disconnected, don't hang up immediately - sometimes they call you back within a few minutes! Much better than waiting months for an in-person appointment.

16 Question: since I just opened my small business this year (LLC, just me so far), should I be setting aside money for unemployment taxes for myself just in case? I've been putting 30% aside for regular income taxes, but not sure if I should add more for unemployment.

Great question! You're absolutely right - as a sole proprietor with no employees, you do NOT need to file Form 940. That form is specifically for reporting Federal Unemployment Tax Act (FUTA) taxes, which only applies when you have actual employees on payroll. Since you're already filing Schedule C and paying quarterly estimated taxes, you're handling the main requirements correctly. Just make sure you're also filing Schedule SE for self-employment tax (Social Security and Medicare taxes for self-employed individuals). One thing to double-check: if you ever do hire employees in the future (not contractors), then you'd need to start filing Form 940, get an Employer Identification Number (EIN) if you don't already have one, and handle payroll taxes. But for now, with just yourself running the business, you can skip the 940 entirely. Keep up the good work with those quarterly payments - that's one of the smartest things you can do as a self-employed person to avoid a big tax bill at year-end!

Has anyone tried just using the IRS tax withholding estimator online instead of the worksheet? The worksheet seems super confusing and I've heard the online tool is more accurate.

I went through this exact same situation last year when my spouse started a second job mid-year! The key thing to remember is that the W-4 multiple jobs worksheet is designed to be conservative - it often results in slightly more withholding than you actually need, but that's better than owing at tax time. Your calculation of $231 extra withholding per paycheck sounds right based on the numbers you provided. And yes, your husband will still have standard withholding from both his jobs - the extra amount you calculated is ON TOP of that standard withholding to account for the fact that your combined income puts you in higher tax brackets than what each employer's withholding tables assume. One thing I'd suggest: since your husband just started and income estimates might change, consider being slightly more conservative with the withholding for the first few months. You can always adjust later using the IRS online estimator once you have actual paystubs from all jobs. Better to get a refund than owe! Also, make sure you're both claiming the correct filing status. If you're going to file jointly, only one of you should claim that status on your W-4s to avoid under-withholding.

I really appreciate all the detailed advice everyone has shared here! After reading through all these responses, especially the real-world experiences from other students and the professional perspective, I'm definitely convinced to take the conservative approach rather than claiming exempt status. The point about being right on that $26K edge where small changes could push me into owing taxes really resonates with me. And honestly, the stories about unexpected research work, tutoring gigs, or other income sources creating surprise tax bills are exactly what I was worried about but hadn't fully considered. I think I'll fill out my W-4 normally (single, no dependents) and let them withhold the small amount each paycheck. Like others mentioned, we're probably only talking about $15-25 per paycheck, and the peace of mind is definitely worth more than that small amount. Plus, if I don't end up owing anything, I'll get it all back as a refund anyway. Thanks everyone for taking the time to share your experiences and advice - this community is incredibly helpful for navigating these confusing tax situations! I feel much more confident about my W-4 decision now.

Great discussion here! As someone who made the exempt mistake early in my career, I want to add one more consideration that might be helpful. Even if you're confident about your current income, remember that as a student your tax situation can change in ways you might not expect. For example, if you withdraw from school mid-semester, any scholarship money that was covering tuition might become taxable income. Or if you graduate mid-year and start a full-time job, your income could jump significantly in the second half of the year. These kinds of changes can catch you completely off guard if you're claiming exempt. The approach you've settled on (normal withholding as single, no dependents) is really smart. You're essentially paying a small "insurance premium" each paycheck to avoid potentially owing hundreds or thousands later. And like others mentioned, at your income level we're talking about maybe $20 per paycheck - probably less than what you spend on coffee in a week! One last tip: when you do file your taxes next year, pay attention to whether you get a large refund. If you're consistently getting back more than $500-600, you might consider adjusting your withholding slightly to keep more money in your pocket throughout the year. But starting conservative is absolutely the right call.