Has anyone actually had their passive losses audited? I've been carrying forward suspended passive losses for years (about $22k now) but honestly I'm not sure if I've been tracking them correctly between my different rental properties.

The interaction between passive losses and capital gains can be tricky, but you're on the right track with your understanding. Here's what I've learned from dealing with similar situations: For your capital gain netting question - yes, you can absolutely net your $195K passive capital gain against your $182K crypto losses. The IRS doesn't distinguish between passive and active sources when it comes to capital gain/loss netting. You'll end up with a $13K net capital gain. Regarding your passive losses, since you're disposing of a rental property with an overall gain, this triggers the "complete disposition" rule that allows you to free up your suspended passive losses. You should be able to deduct both your current year $52K passive losses and your $78K suspended losses (total $130K) against any type of income, not just passive income. One thing to watch out for - make sure you're properly documenting which specific property generated those suspended losses. The IRS can be picky about this during audits. Also, don't forget that the $105K depreciation recapture portion will be taxed differently (at 25% max rate) than the remaining capital gain portion. I'd strongly recommend getting this reviewed by a tax professional given the complexity and the dollar amounts involved. These passive activity rules have so many nuances that even small mistakes can be costly.

Something nobody's talking about - did you sell the house within a year of inheriting it? If not, make sure you're looking at the long-term capital gains rate for the house sale, which is usually more favorable. And don't forget to adjust your basis for any improvements you made before selling!

Just to add another perspective - if you're worried about documentation for the furniture sales, consider creating a simple spreadsheet now while the details are still fresh in your memory. List each item (or group of similar items), approximate date sold, sale price, and your best estimate of fair market value at inheritance. For regular household furniture that's been used, the fair market value is typically much lower than original purchase price. Think about what someone would reasonably pay for used furniture at a garage sale or on Facebook Marketplace - that's probably close to the stepped-up basis value you inherited. Since you mentioned getting around $3,800 total and it was all regular household items, you almost certainly sold everything at or below the stepped-up basis values, meaning no taxable gains to report. But having that documentation organized will give you peace of mind and be helpful if you ever need to reference it later.

7 Stupid question maybe - but why do we even have different rates for short vs long term gains? Seems needlessly complicated.

The different rates also help account for inflation over longer holding periods. When you hold an investment for several years, some of your "gain" is just due to general price increases in the economy, not real investment growth. The lower long-term rate partially compensates for this inflation effect. Additionally, there's an economic argument that capital gains shouldn't be taxed as heavily as ordinary income since the money used to make the investment was likely already taxed when it was earned as wages or business income. The preferential rate recognizes this "double taxation" aspect. For your specific situation with $7,500 short-term and $12,300 long-term gains, you'll save about $861 in taxes compared to if everything were taxed as ordinary income (22% vs 15% on the long-term portion). That's a pretty significant benefit for holding those investments over a year!

Just wanted to chime in as someone who's been through multiple small claims cases for unpaid invoices. The key thing to remember is that even if you win your case, you still have to actually collect the money - and that can be the hardest part. I've won three small claims judgments over the years, but only collected on two of them. That said, having a court judgment definitely gives you more leverage and collection options. In Minnesota, you can garnish wages, put liens on property, or even have the sheriff seize assets. The threat of these actions alone often motivates people to pay up. For your immediate sales tax question though, definitely don't pay tax on money you haven't received. You can always adjust it later if you do collect through small claims, but paying it now would just be throwing good money after bad.

I'm dealing with something similar right now - had a client ghost me after I delivered a custom kitchen renovation worth $12K back in February. The whole sales tax question kept me up at night because I wasn't sure if I was supposed to pay tax on money I never received. After reading through all these responses, I'm definitely not paying sales tax on the unpaid amount for my quarterly filing next week. It sounds like Minnesota is pretty clear that you only remit sales tax on actual collected payments, not delivered work that went unpaid. I'm also going to look into both the small claims route and maybe trying that Claimyr service to get official confirmation from the state. The documentation requirements for proving it's a legitimate bad debt are really good to know about - I've been keeping all my follow-up emails but need to send that certified mail demand letter everyone's mentioning. Thanks for asking this question - saved me from potentially paying $780 in sales tax on money I never got!

Has anyone dealt with this same situation but with dependent children involved? My ex and I have 2 kids and I'm wondering how the filing status and child tax credits would work if we're doing married filing separately with one person itemizing.

Just want to emphasize something important that might get overlooked - make sure you keep detailed records of ALL your attempts to communicate with your ex about the filing requirements. Save emails, text messages, certified mail receipts, etc. If the IRS ever questions why there was a mismatch in filing methods (if she tries to take the standard deduction after you itemize), having documentation that you properly notified her of the requirement can protect you from penalties. The IRS understands that divorced couples don't always cooperate, but they expect the spouse who chooses to itemize to make a reasonable effort to inform the other spouse. Also, consider having your tax preparer send a formal letter to her explaining the requirement - sometimes official communication from a third party gets through when direct communication doesn't. This also creates a paper trail showing you followed proper procedure.