The real issue here that nobody has mentioned is properly documenting your time! If you get audited and claim REPS, the IRS will want to see detailed logs of how you spent those 750+ hours. I learned this the hard way. Keep a detailed diary or use a time-tracking app specifically for your real estate activities. Document date, time spent, and exactly what you did. This includes time spent as a realtor if you're claiming those hours toward your REPS qualification.

Based on what you've described, you likely DO qualify for REPS, but your accountant is right that it's more complicated than it initially appears. Your realtor hours absolutely count toward the 750+ hour requirement - that's established case law. The IRS considers all real estate activities together for this test. So between your full-time realtor work and managing those 2 local properties, you should easily meet the hour threshold. However, the material participation requirement is evaluated separately for each property or group of properties. This is where the grouping election mentioned by others becomes crucial. You can elect to treat all your rental properties as a single activity on Form 8582. Once grouped, you only need to materially participate in the group as a whole, not each individual property. Even with property managers, you likely spend time on oversight activities - reviewing financial reports, approving major repairs, making strategic decisions about rent increases or tenant screening, etc. All of this counts toward material participation hours if properly documented. I'd suggest getting a second opinion from a CPA who specializes in real estate taxation. Many general accountants aren't familiar with the nuances of REPS and grouping elections. The tax savings potential here is significant enough to warrant consulting with a specialist.

This thread has been incredibly helpful! I'm dealing with a similar situation with my 22-year-old son who's in his senior year of college. He's taking 12 credits (full-time at his school), I pay his tuition and rent, and he works about 15 hours a week making around $8,000 annually. One thing I wanted to add that I learned from my tax preparer last year - make sure you understand how the American Opportunity Tax Credit interacts with claiming your child as a dependent. You can only claim the education credit if you're also claiming them as a dependent. So even if the dependency exemption itself doesn't save you much in taxes, the education credits (up to $2,500 per student) can be substantial. Also, for those tracking support expenses, don't forget to include the fair market value of housing if your child lives at home with you. The IRS has guidelines for calculating this - it's usually based on what it would cost to rent a similar room in your area. This can significantly boost your support calculation if your child is living at home rent-free. Has anyone had experience with how this works when your child graduates mid-year? My son graduates in May, so I'm wondering if that affects his student status for the full tax year or just the months he was enrolled.

This has been such an informative discussion! As a tax professional, I wanted to add a few clarifications that might help others in similar situations. First, regarding the "5 months full-time student" rule - it's important to note that this refers to any 5 months during the tax year, and they don't have to be consecutive. So even if your child takes a semester off but was full-time for fall and spring semesters, they likely still meet this test. Second, I see some confusion about income limits. For qualifying children (under 24 and full-time students), there is NO income limit that disqualifies them from being your dependent. The $5,000 limit only applies to qualifying relatives. However, if your child's income is high enough that they're required to file their own return, make sure you coordinate so both of you don't claim the same person. One thing that hasn't been mentioned much is the "tie-breaker" rules when multiple people could potentially claim the same dependent. If parents are divorced or separated, there are specific rules about which parent gets to claim the child that go beyond just who provides more support. Also, keep in mind that some states have different rules than federal, so if you live in a state with income tax, double-check their dependency requirements as well. For anyone still unsure about their specific situation, I'd recommend consulting with a qualified tax professional rather than relying solely on online tools, especially for complex family situations.

I'm so sorry you're dealing with this - it's incredibly frustrating when you do everything correctly and still get caught up in IRS processing issues. Based on what everyone has shared here, you're definitely taking the right approach with the dual submission method. One additional tip from my own experience: when you write your explanation letter, include a specific request for written confirmation that your S-corp election will be effective retroactively from your original intended date. This is crucial because it prevents any confusion during future tax filings about when your election actually took effect. Also, make sure to keep detailed records of every interaction going forward - dates, times, agent names or ID numbers, and what was discussed. If this gets escalated or you need to involve the Taxpayer Advocate Service later, having a complete paper trail will be invaluable. The good news is that this is clearly an IRS processing error, not anything you did wrong. With your fax confirmation and the proper documentation approach everyone has outlined, you should be able to get this resolved without penalties. Stay persistent but patient - sometimes it takes a few weeks for their systems to properly process the resubmission. You've got this! The fact that you're being so thorough with documentation and following up appropriately shows you're handling it exactly right.

This is such a frustrating but unfortunately common issue with the IRS! I went through something very similar with my LLC's S-corp election about 18 months ago. The stress of thinking you missed the deadline when you actually filed on time is awful. Here's what I learned from my experience: the dual approach of certified mail AND fax that the IRS agent recommended is absolutely the way to go. Don't just pick one method - do both. I made the mistake of only re-faxing initially, and guess what? They "lost" that one too! When I finally did both methods simultaneously, I got my acceptance letter within about 5 weeks. The key things that I think helped were: 1. Being very specific in my explanation letter about the original filing date and emphasizing it was within the 75-day window 2. Including the phrase "reasonable cause under IRC Section 1362(b)(5)" (someone mentioned this earlier and it's spot on) 3. Requesting written confirmation that the election would be retroactive to my intended effective date 4. Following up with a call to the Business Entity Control department (not general customer service) about 3 weeks after sending The whole situation taught me that the IRS fax systems are honestly pretty unreliable, especially for important documents like Form 2553. For any future business filings, I now always use multiple submission methods from the start. Hang in there - you did everything right, and with proper documentation and persistence, this will get resolved without penalties. The proof of your timely fax submission is your protection!

One thing nobody mentioned - make sure you check if you qualify for the 0% long-term capital gains rate! If your total taxable income (including the capital gains) falls below $44,625 for single filers or $89,250 for married filing jointly in 2025, your long-term capital gains might be taxed at 0%. I didn't realize this my first year investing and overpaid my taxes. Had to file an amendment to get my money back.

Just wanted to add another perspective as someone who's been dealing with capital gains for a few years now. The confusion you're experiencing is totally normal - the way Schedule D flows into Form 1040 isn't intuitive at first glance. One thing that really helped me understand this was looking at the actual tax calculation worksheets (even if you're using software). The Qualified Dividends and Capital Gain Tax Worksheet literally shows you line by line how your regular income gets taxed at ordinary rates, then your long-term gains get "stacked on top" and taxed at the preferential rates. Also, don't forget about the Net Investment Income Tax (NIIT) if your income is above certain thresholds. That's an additional 3.8% tax on investment income that applies regardless of whether your gains are short-term or long-term. It caught me off guard my first year with significant capital gains. The system really does work correctly once you understand the flow: Schedule D → Form 1040 Line 7 → Tax calculation worksheet → Different rates applied automatically. Your software (or the IRS if filing by paper) handles all the complex calculations behind that simple line on Form 1040.

One thing I'd add to all this great advice - don't forget about the actual mechanics deduction vs. standard mileage rate choice! You mentioned using the standard rate, which is usually simpler, but make sure you're not leaving money on the table. For your situation as an independent contractor with regular trips to one client, the standard mileage rate (65.5 cents per mile for 2023) is probably your best bet since it's straightforward and you don't have to track actual vehicle expenses. Just remember that once you choose the standard mileage rate for a vehicle, you generally have to stick with it for the life of that vehicle - you can't switch to actual expense method later. Also, since you mentioned this is the same route every time, consider using a mapping service like Google Maps to get the exact mileage once, then multiply by your number of round trips. This gives you a defensible, consistent distance calculation that the IRS would likely find reasonable. Just make sure to note in your log which mapping service you used and the date you calculated the distance. The fact that you're being cautious and only wanting to claim what you can properly document puts you in a good position. Most audit issues come from people who get aggressive with deductions they can't substantiate.

I appreciate seeing all this detailed advice! As someone who's been through a similar situation, I want to emphasize one crucial point that hasn't been mentioned yet - make sure you're tracking your odometer readings at the beginning and end of each tax year. The IRS wants to see your total annual mileage broken down into business and personal use. So even if you have perfect records of your business trips, you'll still need to know your total mileage for the year to calculate the business use percentage. I learned this the hard way when I realized I had great business trip records but no way to prove what percentage of my total driving was business-related. A simple solution is to take a photo of your odometer on January 1st and December 31st each year, and maybe once mid-year as a backup. This gives you the total annual mileage baseline that the IRS expects to see on your Schedule C. Also, since you mentioned using Excel to organize everything - consider adding a column for cumulative business miles. This makes it easy to see patterns and ensures your claimed deduction matches your calculated total. Having that internal consistency in your records goes a long way toward demonstrating credibility if you're ever questioned.