Quick tip - don't forget about state taxes too! Depending on Texas local tax laws, you might need to report this on your state return as well. Some states follow federal treatment of settlements while others have their own rules.

This is such a thorough discussion! I went through a similar situation with an employment discrimination settlement last year. One thing I'd add is to make sure you get a copy of the settlement agreement that clearly states the nature of the damages being awarded. In my case, the settlement agreement specifically mentioned "emotional distress and mental anguish" which made it much easier when I had to explain the tax treatment to my tax preparer. If your agreement isn't clear about this, you might want to get a clarifying letter from your attorney. Also, regarding the 1099-MISC timing - in my experience, some companies are slow to issue these for settlements. I had to follow up with my attorney in February because the company "forgot" to send mine. Don't assume they'll automatically handle it! The advice about including a written statement with your return is spot-on. I actually attached a brief explanation referencing the specific IRS code sections for emotional distress settlements (Section 104(a)(2)) and the attorney fee deduction (Section 62(a)(20)). Made me feel more confident that everything was properly documented.

Anyone know which form I need to use for reporting US-source FDAP income? Is it just part of the regular 1040-NR or is there some special schedule?

This is a great discussion that covers the key points really well! Just wanted to add one more consideration for non-resident aliens dealing with FDAP income - don't forget about the substantial presence test if you've been in the US for an extended period. Even if you're on a work visa and consider yourself a non-resident alien, if you meet the substantial presence test (generally 183+ days over a 3-year period with specific weighting), you might actually be considered a resident alien for tax purposes. This would completely change your reporting requirements - you'd then need to report worldwide income, not just US-source FDAP. The good news is there are exceptions and tie-breaker rules, especially if you have a closer connection to your home country. But it's definitely worth checking if you've been in the US for substantial periods across multiple years.

Random question but does anyone know if there's a time limit for employers to submit a corrected W2C? My situation is similar but from 2022 and I'm worried it might be too late to get them to fix it.

This is such a frustrating situation, but you're definitely on the right track! I went through something very similar when my company merged with another one mid-year and both entities ended up filing W2s for the same period. One thing that really helped me was creating a detailed timeline document that showed: - Exact dates of employment at the company - When the payroll system switch happened - Pay periods covered by each W2 - Bank deposit dates and amounts for each pay period This made it crystal clear to both my employer and the IRS exactly where the overlap occurred. I also kept screenshots of my online pay stubs from both systems showing the duplicate reporting. The key is having ironclad documentation. Since you have that email from HR telling everyone to only use the new W2, that's golden evidence. Make sure to include that with everything else when you respond to the CP2000. Don't let your employer's confusion derail you - sometimes it's easier to just go directly to the IRS with your evidence rather than trying to get a company to admit they made an error. The IRS deals with payroll system transition issues all the time and they'll know what to look for in your documentation.

I feel your pain on this one! I went through almost the exact same situation last year when I had to sell due to a family emergency. Lost about $35k on the sale and was shocked to learn I couldn't deduct any of it. What really helped me understand the rationale (though it didn't make me any less frustrated) was learning that the IRS views your primary residence as providing you with "imputed rent" - basically, you got value from living there rent-free that you would have otherwise paid to a landlord. So in their view, you received ongoing benefit from the asset even if you lost money when selling. It's still maddening that they'll happily tax gains above the exclusion but won't let you deduct losses. The asymmetry is real and it definitely feels like the house always wins. At least you got some good advice in this thread about maximizing other deductions and understanding the business use exceptions - those nuggets of information might help soften the blow a little bit. Hang in there - you're definitely not alone in thinking this particular tax rule is fundamentally unfair to homeowners!

I really appreciate everyone sharing their experiences with this frustrating situation. As someone who works in tax preparation, I see this exact scenario come up multiple times every year, and the disappointment on clients' faces when I have to explain the "heads I win, tails you lose" nature of primary residence taxation is always heartbreaking. One thing I'd add to this excellent discussion: if you're facing a potential loss situation in the future and have some flexibility on timing, consider whether you might benefit from a partial rental conversion before selling. Even renting out just a room or basement apartment for a legitimate period can change the tax treatment for that portion of the property. Also, for anyone reading this thread who hasn't sold yet - document EVERYTHING. Keep receipts for every improvement, no matter how small. Even if you can't deduct losses on personal residence sales, those improvements increase your basis and could save you thousands in taxes if the market recovers and you end up with a gain instead. The tax code isn't fair in this regard, but understanding the rules can at least help you make the most of a bad situation. Thanks to everyone who shared practical resources and experiences here - this is exactly the kind of real-world advice that helps people navigate these challenges.

This whole thread has been incredibly educational! I work as a tax preparer and see this exact confusion every single year with Fidelity forms. You're absolutely right that "FIDELITY INVESTMENTS" is the correct payer name to use. What I always tell my clients is that these large financial institutions often have multiple subsidiary names for different divisions, but they report to the IRS under their main corporate entity. The "Institutional Operations Co." designation is just Fidelity's internal organizational structure - it's not what matters for tax reporting purposes. The EIN is indeed the critical matching element. I've seen clients stress over whether to include periods, commas, or specific formatting in company names, but I've never had a return rejected or delayed due to minor payer name variations as long as the EIN and dollar amounts are correct. For anyone else dealing with similar situations with other brokerages - Vanguard, Schwab, etc. - the same principle applies. Use the main company name that most people would recognize, and make sure that EIN is entered perfectly. The tax software dropdown menus are your friend here since they're designed to match IRS expectations.

As someone who just went through this exact same situation last week, I can confirm that using "FIDELITY INVESTMENTS" is absolutely the right approach! I had the same confusing form with the "Institutional Operations Co." designation and spent way too much time overthinking it. What really helped me was calling FreeTaxUSA's support line directly. They confirmed that their dropdown menu uses "Fidelity Investments" specifically because that's how Fidelity reports to the IRS. The support rep also mentioned that their software is updated annually to match the most current IRS payer databases. I filed my return using "FIDELITY INVESTMENTS" and got my refund deposited exactly when they estimated - no delays or issues whatsoever. The EIN matched perfectly and that's really all the IRS cares about for their automated matching system. For anyone still worried about this, I'd definitely recommend using the dropdown option in your tax software if it's available. These companies spend a lot of resources making sure their payer databases are accurate because return rejections cost them support time and customer satisfaction. Hope this helps put some minds at ease! This thread has been so helpful for understanding how the IRS matching process actually works behind the scenes.