Has anyone ever had the IRS challenge their treatment of earnest money in a 1031? I'm in a similar situation but worried about getting flagged for audit if I don't report it as ordinary income.

This is such a complex area and I'm seeing some really helpful insights here! As someone who just went through a similar situation, I wanted to add that documentation is absolutely critical. I kept detailed records of the first buyer's breach of contract, the earnest money forfeiture, and how it related to my overall 1031 exchange timeline. My tax preparer said having clear documentation showing the connection between the earnest money and the eventual successful sale was key to justifying treating it as part of the overall transaction rather than separate ordinary income. One thing I learned is that if there's a significant time gap between losing the first buyer and closing with the second buyer, the IRS might be more likely to view these as separate events. In my case, the gap was only about 6 weeks, which helped support treating it as one continuous transaction process. Also worth noting - if you're doing your own taxes, Form 8824 for the 1031 exchange should include all the transaction details, including any adjustments for earnest money situations like this. Don't forget to adjust your basis calculations accordingly!

Great discussion here! One additional thing to consider that I haven't seen mentioned - make sure you have solid documentation of your residency periods for both properties. The IRS can be pretty strict about proving the "use test" especially when there are overlapping ownership periods. I'd recommend gathering utility bills, voter registration records, driver's license addresses, and any other documentation that clearly shows which property was your primary residence during specific time periods. Since you both owned separate homes before marriage, you'll want to be extra careful about demonstrating continuous primary residence use. Also, if either property was ever rented out (even briefly), that could complicate the exclusion calculation. The IRS has specific rules about periods of "nonqualified use" that can reduce your exclusion amount. Worth double-checking your timeline to make sure there weren't any rental periods you might have forgotten about.

One thing that hasn't been mentioned yet is the timing consideration for your sales. Since you're married now, you'll want to be extra careful about which tax year each sale falls into, especially if you're considering filing separately. If you sell both properties in the same tax year and file separately, you'll each need to report your respective property sale on your individual return. However, if you can time the sales to fall in different tax years (one in December 2025, one in January 2026), you might have more flexibility in choosing your filing status each year based on what's most advantageous. Also, don't forget about depreciation recapture if either of you ever claimed a home office deduction on these properties. That portion of the gain isn't eligible for the Section 121 exclusion and will be taxed at a 25% rate regardless of your filing status. I'd strongly recommend running the numbers both ways (MFS vs MFJ) with a tax professional who can model different scenarios, including the timing of the sales. The capital gains exclusion benefit might be offset by other tax disadvantages of filing separately, depending on your overall financial picture.

I'm dealing with a similar situation right now! I've been legally blind since childhood but only recently learned about the tax benefits. One thing I'd add is that if you're employed, you might also want to look into whether your employer offers any vision-related benefits or accommodations that could have tax implications. Some assistive technology purchases for work can be deductible as unreimbursed employee expenses if you itemize. Also, I discovered that if you use a tax preparer, many of them aren't familiar with these specific deductions for blindness. When I went to H&R Block last year, the preparer had to look it up because they'd never handled it before. So don't feel bad about not knowing - even some tax professionals miss this stuff! It might be worth specifically asking your preparer about disability-related deductions when you file going forward.

Great question about assistive technology deductions! From my experience, items like screen readers, braille displays, and voice recognition software can potentially qualify as medical expenses if they're primarily for managing your blindness, but the rules are tricky. For work-related equipment, it depends on whether your employer reimburses you and whether you itemize vs take the standard deduction. The key thing with assistive technology is documenting that it's "primarily for medical care" - so if you use a braille display 80% for managing daily tasks related to your blindness and 20% for general computer use, it would likely qualify. But if it's mainly for general productivity, it might not. One thing that helped me was getting a letter from my eye doctor specifically stating that certain equipment is medically necessary for my condition. This creates a clear paper trail if the IRS ever questions it. Also, keep detailed records of how you use each piece of equipment - the IRS may want to see that it's truly medical in nature rather than just convenient technology. You're absolutely right about asking your CPA to review past returns! Many tax professionals don't specialize in disability-related deductions, so being proactive about bringing this up could uncover missed opportunities. There are often multiple angles beyond just the standard deduction - medical expenses, equipment costs, sometimes even transportation expenses related to medical care.

I used taxr.ai when this happened to me its actually crazy accurate. told me exactly when id get my refund and what was holding it up. Better than waiting for the notice tbh

I went through the exact same thing last year with a 570 code and EIC review! The good news is your transcript looks normal for this type of hold - they're just verifying your income to make sure the EIC amount is correct. Since your AGI is $7,739 and you're claiming $2,090 in EIC, they want to double-check that you actually earned that income and qualify. The 971 notice should arrive within the next week or so and will tell you exactly what documents to send in. Pro tip: start gathering your documents now - W2s, 1099s, any records of the income that supports your EIC claim. When that notice comes, respond ASAP because the faster you send everything back, the faster they'll release your refund. In my case, it took about 4-5 weeks total from the 570 code to getting my money. Your $3,331 is safe, it's just sitting there waiting for verification. Hang in there! 💪

I'm confused about the child tax credit situation with Form 8332. If I let my ex claim our kids using this form, does that mean they get ALL the tax benefits? Or do I still get some of them?

Just want to add one more tip that saved me a lot of trouble - make sure you keep detailed records of when you give the completed Form 8332 to your ex. I take a photo of the signed form and send it via email so there's a timestamp, then also give them the original. Last year my ex lost the form right before filing and we had to scramble to get another one signed. Having that digital backup with the date stamp helped prove I had provided it on time. Also helped when the IRS had questions later - I could show exactly when the form was completed and delivered. The whole process is stressful enough without having to worry about lost paperwork!