This is a fascinating thread with lots of great insights! As someone who's been following real estate tax strategies closely, I wanted to add a few thoughts that might help with your decision. One thing I haven't seen mentioned yet is the potential impact of state taxes on your strategy. Depending on what state you're in, the state capital gains tax rate could significantly affect your calculations. Some states have no capital gains tax, while others treat it as ordinary income. This could tip the scales toward or away from the 1031 exchange approach. Also, regarding your question about the $250k exclusion with multiple properties - there's actually a "once every two years" rule that applies to the Section 121 exclusion. If you sell your current primary residence using the exclusion, you won't be eligible to use it again for another 2 years. This could affect the timing of your overall strategy if you're planning to sell both properties within a short timeframe. The depreciation recapture issue that others mentioned is really significant here. With $125k already taken plus whatever additional depreciation you'd claim during the rental period, you're looking at a substantial 25% hit that can't be avoided with the primary residence exclusion. Given all the complexity and potential pitfalls, I'm leaning toward agreeing with the folks suggesting the multi-family conversion approach. It's cleaner, more straightforward, and gets you out of the landlord business faster while still providing meaningful tax benefits. Have you considered consulting with a tax professional who specializes in real estate to run the actual numbers on all these scenarios? The devil is really in the details with these strategies.

I've been following this discussion with great interest as I'm dealing with a similar situation. One aspect that hasn't been fully explored is the impact of the Tax Cuts and Jobs Act (TCJA) on these strategies, particularly the changes to like-kind exchange rules and the potential for future tax law changes. Under current law, 1031 exchanges are still available for real estate, but there's always political discussion about limiting or eliminating them. If you're planning a multi-year strategy, you're taking on legislative risk that the rules could change before you complete your plan. Also, I wanted to mention something about the qualified intermediary selection process. Not all QIs are created equal, and you want one with strong financials and proper segregation of client funds. There have been cases where QIs have gone bankrupt or misappropriated funds, leaving investors unable to complete their exchanges. Make sure any QI you choose is bonded and has a solid track record. For what it's worth, I recently decided against a similar 1031 strategy and instead took the tax hit upfront. The certainty of knowing my exact tax liability and being able to move on with my life was worth more to me than the potential savings from a complex multi-year plan with multiple moving parts. The multi-family conversion approach really does seem like your best option here. You get immediate relief from landlord duties, maintain some rental income, and achieve meaningful tax benefits without the complexity and risks of a 1031 exchange. Sometimes the best tax strategy is the one that lets you sleep well at night while still achieving your financial goals.

same boat fam. filed march 2023 still nothing 😭

Have you tried requesting your account transcript from the IRS website? That'll show you if there are any hold codes or issues that aren't visible in the "Where's My Amended Return" tool. I was stuck for 18 weeks and found out through my transcript that they had flagged my return for additional review. Once I knew the specific issue, I was able to call with the right information and get it resolved much faster. The transcript is free and gives you way more detail than the basic tracking tool.

Has anyone tried the IRS2Go mobile app for this? I had similar issues with the website queue last year, but the mobile app seemed to have shorter wait times.

Just went through this exact same nightmare today! I was in the IRS queue for over an hour trying to get my AGI. What finally worked for me was calling the IRS automated phone line at 1-800-908-9946 - it's their automated refund/account info line. You can get your prior year AGI without talking to a human if you have your SSN and either your filing status or exact refund amount from last year. Way faster than waiting in that website queue, and it's available 24/7. Saved me when I was down to the wire!

Has anybody had experience with the audit risk when filing Form 8840? My accountant is telling me it's a "red flag" but I think he's just trying to scare me into paying for more services. My husband is in almost the identical situation (working in Mexico, comes back to US for about 4 months total throughout the year).

I went through this exact situation with my wife last year! She was working in the UK for about 9 months but we maintained our primary residence and all financial ties in the US. From our experience, Form 8840 is definitely NOT standalone if your husband had any US source income. Since he was physically working in the US for part of the year (even if paid by a Canadian employer), that's considered US source income and requires filing Form 1040-NR with the 8840 attached. One thing that caught us off guard was the level of documentation required for the 8840 itself. They want extensive proof of your closer connection to the US - bank statements, utility bills, voter registration, driver's license, kids' school records, etc. Start gathering all of that now because it's quite comprehensive. Also, make sure to calculate the substantial presence test carefully. The days count differently for the three-year period, and there are specific rules about commuting from Canada that might apply to your situation. We initially miscounted and almost filed incorrectly. The good news is that once you establish the pattern correctly, it becomes much easier in subsequent years. Just be thorough with the documentation the first time around!

Thank you all for the amazing advice! I talked to my wife and we decided to use the IRS Tax Withholding Estimator first to get a baseline. It recommended that I (higher earner) check box 2(c) and add about $55 per paycheck in section 4(c), while she should just select "Married Filing Jointly" without checking 2(c). We're going to submit these changes to our employers this week. I'm really grateful for all the detailed explanations - the W4 form is surprisingly complex for something that seems like it should be straightforward!

Great to see you got it sorted out! Just wanted to add one more tip that helped us - consider doing a "paycheck checkup" around mid-year (July/August) to see if you're on track. You can look at your year-to-date withholding on your pay stubs and compare it to what you actually owed last year (adjusted for any salary changes). If you're way off, you can always submit updated W4s to fine-tune the withholding for the rest of the year. We learned this the hard way after implementing our changes in March and realizing we were still slightly underwithholding by summer. Also, keep in mind that if either of you gets a significant raise or bonus during the year, it might throw off your calculations since bonuses are often withheld at a flat 22% rate which might not match your actual tax bracket.