Make sure you keep ALL documentation related to this sale for at least 7 years! The IRS has been increasingly looking at real estate transactions, especially when large gains are involved. If you claimed any home office deductions while living there, that can also complicate things because you may have to recapture some depreciation. Just something to consider if you ever worked from home and took the deduction.

@MidnightRider, you're dealing with a pretty common situation that catches a lot of people off guard! Since you inherited the property and lived there for 4 years, you're likely in good shape for the Section 121 exclusion that Andre mentioned. The key thing to remember is that your "cost basis" isn't the $175k your parents paid - it's the fair market value when you inherited it (stepped-up basis) PLUS all those improvements you made ($12k + $28k + $15k = $55k in improvements). So if the house was worth, say, $280k when you inherited it, your total basis would be around $335k ($280k + $55k improvements). With a sale price of $320k, you might actually have a loss rather than a gain! You'll definitely need to get documentation of the property's value at the time of inheritance. Check if there was a probate appraisal, estate tax filing, or property tax assessment from that time. If not, you might need a retrospective appraisal. Don't panic - you've got time to gather everything together. Just make sure to report it on Form 8949 and Schedule D when you file. And definitely keep all those renovation receipts like Dylan mentioned!

Look into whether you qualify for Head of Household status. This is better than MFS in almost every way. You need to have lived apart from your spouse for the last 6 months of the year, paid more than half the costs of keeping up your home, and had your child living with you for more than half the year. If you meet these requirements, you can file HOH even though you're still legally married. This preserves your eligibility for EIC and gives you a larger standard deduction than MFS. Don't just assume MFS is your only option - many tax preparers don't even check if separated people qualify for HOH.

I went through this exact situation two years ago and want to share what I learned the hard way. Everyone here is giving great advice about Head of Household being better than MFS, but I want to add a practical tip: make sure you understand the "lived apart" requirement thoroughly. The IRS considers you "lived apart" if you didn't live in the same household for the last 6 months of the tax year. This doesn't mean you have to be completely separated the entire year - just that final 6-month period matters for HOH qualification. Also, regarding the EIC question - if you do qualify for HOH, you absolutely CAN claim EIC with your qualifying child. The income limits are much more generous for HOH than for married filing jointly too, so you might qualify even if your combined income was previously too high. One more thing - keep detailed records of everything: when you separated, proof of separate residences, childcare expenses, household costs. If the IRS questions your filing status later, you'll need documentation to back up your claims. Trust me, it's better to over-document than scramble to find proof later!

I went through this exact situation and learned the hard way that insolvency at the time of forgiveness is super important! If your dad's liabilities exceeded his assets at the time the debt was forgiven, he might qualify to exclude some or all of the forgiven debt from income. Form 982 is what you'd use to claim this exclusion. This form has to be filed with the tax return, so even if your dad normally doesn't file, he might need to if he wants to claim insolvency.

This is a really complex situation, but you're asking the right questions! Since your dad is on permanent disability and typically doesn't file taxes, the key thing to understand is that any tax implications from the repossession would follow the legal ownership of the loan - which is in his name. One important point that hasn't been fully addressed: even if your dad receives a 1099-C, he may not need to file a return if his total income (including the forgiven debt) still falls below the filing threshold for his age and filing status. For 2023, if he's under 65 and his gross income is less than $13,850 (or $15,700 if 65 or older), he generally wouldn't need to file. However, if the forgiven debt amount is large enough to push him over the filing threshold, he would need to file - but that's where the insolvency exclusion on Form 982 could come into play if his debts exceeded his assets at the time of forgiveness. The fact that you used the car for commuting doesn't create any tax obligations for you, as others have correctly pointed out. Personal vehicles used for regular commuting aren't considered business assets, even if they're essential for getting to work. I'd recommend documenting your dad's financial situation as of the repossession date (assets vs. liabilities) just in case a 1099-C does arrive and you need to evaluate insolvency options.

Has anyone used TurboTax to calculate their EIC? I'm having the same issue with a low credit amount and wondering if the software might be calculating it wrong. I've used TT for years but this is the first time I've qualified for EIC.

I'm dealing with a similar situation and found that many people don't realize the EIC has very specific income ranges where it provides maximum benefit. Based on what everyone's shared here, it sounds like your $19,000 income is putting you right at the phase-out threshold. One thing that helped me understand my situation better was requesting a transcript of my tax account from the IRS website. It shows exactly how they calculated my EIC and breaks down all the income sources they used. You might discover there's additional income being counted that you forgot about - even small amounts like bank interest or cash app earnings can push you over the optimal EIC range. Also, if you're doing food delivery work, make sure you're deducting legitimate business expenses like mileage, phone bills, and delivery bags. While this won't directly increase your EIC (since it's based on earned income before business deductions), it can reduce your overall tax liability and increase your refund in other ways.

Does anyone know if this affects Form 5329? I removed excess contributions like OP, got a 1099-R with code 8J, but my tax software is still prompting me to fill out Form 5329 and showing a 6% penalty. Shouldn't this form be unnecessary if I corrected the excess before the deadline?

I went through almost the exact same situation last year! Made an excess Roth contribution, caught it during tax prep, and had my brokerage remove it before the filing deadline. Just to confirm what others have said - you should see code 8J on your 1099-R since you removed the excess in the same year before the tax deadline. The "8" indicates excess contribution removal, and the "J" modifier accounts for the adjustment (loss in your case). One tip: when you get your 1099-R, double-check that the distribution amount matches what your brokerage told you they removed. Mine was slightly different due to market fluctuations between when I requested the removal and when it was processed. Also keep all your documentation showing the removal was requested and completed before the tax deadline - it's good backup if the IRS has any questions. The good news is no penalties and no amended return needed since you caught it in time!