Has anyone used a 1031 exchange to defer these capital gains? I'm in a similar situation and considering using the proceeds to buy another investment property.

This is a complex situation that involves several tax considerations beyond just basic capital gains. Given the quit-claim deed origin, rental income history, and significant appreciation, I'd strongly recommend consulting with a tax professional before proceeding with the sale. A few additional points to consider: 1. Make sure you have documentation for the fair market value at the time of the quit-claim transfer - this could affect your basis calculation 2. Since you've been collecting rent, you'll need to account for any depreciation recapture as others mentioned 3. The fact that this wasn't an arm's length transaction might require special documentation for the IRS With a potential $370k+ gain after improvements, even small errors in your calculations could be costly. A CPA experienced with real estate transactions could help you optimize your tax strategy and ensure you're compliant with all requirements.

Has anyone used the IRS's Direct Pay system for estimated payments? I'm about to submit my Q2 payment (late, I know) and wondering if there's anything I should know before using it. Does it automatically apply the payment to the right quarter? I'm now second guessing all my calculations after reading this thread about the publication issues.

I ran into this exact same issue last month! The Publication 505 worksheets are definitely confusing when you have irregular income starting mid-year. I found that the problem with line 10 on Worksheet 2-3 is that it assumes you've already calculated certain figures that might not apply to your situation. Here's what worked for me: I focused primarily on Worksheet 2-7 since that's specifically designed for annualized income calculations. When it sends you to other worksheets, I only used the relevant portions and ignored the parts that created circular references. For Q2 with income starting then, make sure you're using the 2.4 multiplier (12 months ÷ 5 months from February through June) rather than the standard 4. This was the key mistake I was making initially. Also, don't feel bad about considering tax software at this point - sometimes it's worth paying for the peace of mind that the calculations are correct, especially when the IRS's own instructions are this confusing!

Has anyone used the "Sale of Business Property" worksheet in FreeTaxUSA specifically? I'm having similar issues and the interface is confusing me.

I went through this exact same situation last year with a business vehicle that was about 15% business use. The key thing that helped me was understanding that FreeTaxUSA handles this differently than you might expect. When you go to "Income" → "Less Common Income" → "Sale of Business Property", make sure you're entering ONLY the business portion of everything. So if your vehicle was 10% business use: - Original cost: $2,550 (10% of $25,500) - Accumulated depreciation: $1,350 (what you actually claimed) - Sales price: $1,980 (10% of $19,800) This gives you an adjusted basis of $1,200 ($2,550 - $1,350) and a gain of $780 ($1,980 - $1,200). The $380 in additional taxes you're seeing is likely correct - it's roughly 25-28% of that $780 gain (depending on your tax bracket). I know it feels unfair since you lost money overall, but the IRS treats the business and personal portions completely separately. The personal loss isn't deductible, and the business portion shows a gain due to the depreciation you've already benefited from over the years. Make sure you're not double-entering anything in the vehicle expenses section of Schedule C once you've reported the sale on Form 4797.

Don't make my mistake! I set up a payment plan in 2022, then counted on my 2023 refund for a down payment on a car. The refund never came, and the car dealer was NOT understanding when I had to back out of the purchase. The IRS took every penny of my $2,300 refund without warning. The payment plan documents mention this in the fine print, but who reads all that? The worst part was I had to spend hours on the phone with the IRS just to confirm what happened to my refund money. Plan accordingly and don't count on seeing that $1,275.

I'm dealing with a similar situation right now and this thread has been incredibly helpful! I owe about $2,800 from 2021 taxes and just set up my payment plan last month. I was hoping to use my expected $950 refund to fix my car's transmission, but it sounds like I need to make other arrangements. One thing I'm wondering - does anyone know if there's a way to get notified BEFORE they take the refund? It would be nice to know exactly when it happens so I can update my budget accordingly. Also, when they apply the refund to your debt, does it go toward interest first or the principal balance? That could make a big difference in how much it actually helps reduce the payment timeline. Thanks everyone for sharing your experiences - it's frustrating but at least now I know what to expect!

Just to add something that was glossed over - in the original example with $67M revenue, we're assuming that's net profit after expenses, right? Because revenue itself isn't what passes through to your personal return - it's net business profit after all legitimate business expenses. So if your S-Corp had $67M in revenue but $40M in legitimate business expenses, your actual pass-through income would be $27M, not $67M.

Great point about revenue vs. net profit! This is a crucial distinction that trips up a lot of S-Corp owners. In your $67M example, if we're talking about actual revenue, you'd first subtract all legitimate business expenses - salaries, rent, equipment, marketing, professional fees, etc. Let's say your actual net profit after expenses is $27M (as Kolton suggested). Then your $2.7M salary would be part of those business expenses, reducing your pass-through income to around $24.3M. You'd pay personal income tax on that $24.3M whether you distribute it or keep it in the business. The self-employment tax savings would be on the $24.3M in distributions rather than $64.3M, but that's still substantial - roughly $3.7M in self-employment tax savings vs. if you structured as a sole proprietorship. Also worth noting that with profits this large, you'd definitely want to work with a tax professional to ensure your salary meets the "reasonable compensation" requirements. The IRS scrutinizes S-Corps with high distributions relative to salaries, especially when we're talking about millions in pass-through income.