Based on your timeline, you definitely should have filed 1040-NR instead of 1040. Here's why: As an F1 student who arrived in September 2021, you're considered an "exempt individual" for your first 5 calendar years (2021-2025). This means: - Your F1 days (Sep 2021 - Dec 2022): Don't count - Your F1-OPT days (Jan 2023 - Sep 2023): Don't count - Your H1B days (Oct 2023 - Dec 2023): Only about 92 days count With only ~92 countable days in 2023, you clearly don't meet the 183-day threshold for the Substantial Presence test. You should file Form 1040-X to amend your return to 1040-NR. This is especially important since you mentioned potential USCIS applications - having incorrect tax filings can definitely complicate future immigration processes. I'd recommend getting this corrected ASAP and keeping documentation of the amendment for your records. Your accountant may not have been familiar with the F1 exempt individual rules, which is unfortunately common. Consider finding a CPA who specializes in nonresident tax issues for future filings.

I went through almost the exact same situation last year! F1 student who switched to H1B mid-year and my original accountant also filed a 1040 when it should have been 1040-NR. The key issue is that many CPAs don't fully understand the "exempt individual" rules for international students. Like others mentioned, your F1 and F1-OPT days don't count toward the Substantial Presence test during your first 5 calendar years in the US. So with only October-December 2023 on H1B status, you definitely wouldn't meet the 183-day requirement. When I amended my return with Form 1040-X, I actually got a refund because non-residents have access to certain tax treaty benefits that residents don't get. Plus, the standard deduction and tax rates can work out differently. The amendment process took about 12 weeks to process. One important tip: keep all your documentation (I-20s, OPT cards, H1B approval notice with exact dates) because USCIS will likely ask for your tax transcripts during your green card interview. Having the corrected filing shows you were proactive about fixing any errors, which they view positively. I'd strongly recommend finding a CPA who specializes in nonresident tax issues for next year. The rules are complex and most general practitioners just aren't familiar with all the visa-specific exceptions.

Has anyone mentioned withholding yet? When I did my IRA withdrawal last year, I had them withhold 35% for federal taxes right off the top. That way I didn't have to do that recursive calculation - the withholding counts as if it was paid evenly throughout the year, so no underpayment penalties. You just fill out the form saying what % you want withheld.

One thing that might help reduce your overall tax burden is checking if you qualify for any deductions or credits that could offset the increased income from your IRA withdrawal. Since you mentioned you're divorced, make sure you're not missing out on head of household filing status if you have dependents, or consider if you can bunch itemized deductions (like charitable contributions or state taxes) into the year you take the withdrawal to maximize their benefit. Also, don't forget about estimated quarterly tax payments! If you're taking this withdrawal mid-year and your withholding plus regular paycheck taxes won't cover the full liability, you'll need to make estimated payments to avoid underpayment penalties. The IRS generally wants you to pay 90% of current year taxes or 100% of last year's taxes (110% if your prior year AGI was over $150k) throughout the year. Have you run the numbers on what your effective tax rate would be if you spread this over 2-3 years instead of taking it all at once? Even if it delays your home purchase slightly, the tax savings could be substantial enough to make it worthwhile.

Just want to add - I did a similar transaction last year and the timing requirements of the 1031 exchange are no joke! The 45 days to identify potential replacement properties flies by, especially in today's market where good investment properties get snapped up quickly. My advice: start looking for replacement properties BEFORE you close on your sale. You can't officially identify them until after closing, but having a shortlist ready will save you a lot of stress during those 45 days. Also, work with a real estate agent who understands investment properties and 1031 exchanges. I wasted precious time explaining the requirements to an agent who kept showing me properties that wouldn't work for my exchange.

One thing I haven't seen mentioned yet is the importance of getting proper tax advice on the state level too. While federal rules allow the combination of 121 exclusion and 1031 exchange, some states have different rules or don't recognize one or both of these benefits. For example, in some states you might face state capital gains tax even if you successfully defer federal taxes through the 1031 exchange. And the timing of when you need to file state forms might be different from federal requirements. I learned this the hard way when I did a similar transaction - ended up owing unexpected state taxes even though my federal situation was handled correctly. Make sure to check with a tax professional who knows your state's specific rules, especially if you're buying replacement property in a different state than where you're selling. Also, don't forget about the potential impact on your state tax residency status if you're moving to a different state as part of this transaction!

Consider using the 3-property rule for your 1031 identification. You can identify up to 3 potential replacement properties regardless of their fair market value. This would let you name your neighbor's property plus 2 backup options in case they don't sell in time. Gives you some flexibility while still targeting the property you really want.

I tried doing something similar last year and it didn't work out. My neighbor changed their mind about selling and I had to scramble to find another property within the 180 days. Ended up buying something I wasn't that excited about just to complete the exchange. Make sure you have solid backup options!

Has anyone used a DST (Delaware Statutory Trust) as their replacement property after doing a cash-out refinance on their relinquished property? I'm considering this because DSTs typically come with existing financing that might help satisfy the debt replacement requirements mentioned above.

Great discussion here! I want to add another perspective based on my recent experience. I did a cash-out refinance about 10 months before my 1031 exchange, and one thing that really helped was getting a formal tax opinion letter from my CPA before proceeding with the exchange. The letter documented the business purpose for the refinance (I used the funds to acquire another rental property) and explained why it was a separate transaction from the planned exchange. When I met with my qualified intermediary, having this documentation made them much more comfortable with the situation. Also worth noting - if you're considering this route, make sure your refinance lender is aware you might be selling the property within the next year or two. Some loan agreements have prepayment penalties or require notification before sale. You don't want any surprises during your 45-day identification period that could derail your exchange timeline. The key is really about documentation and demonstrating clear separation between the two transactions. Keep detailed records of what you do with the refinance proceeds and make sure there's a legitimate business purpose beyond just accessing equity before the exchange.