How exactly do you make this payment though? Do you use the extension payment form or something else? And what form do I use to document why I'm sending money when I already filed?

You can make the payment directly through the IRS Direct Pay system on their website. Select "extension" as the reason for payment (even though technically you already filed), and for the form, select 1040. Keep the confirmation number they give you as proof. You don't actually need a special form to document why you're sending the money. When you later file your amended return (1040-X), you'll include a brief explanation about the late K-1 in the "explanation of changes" section, and the payment will automatically be applied to your account. If you want extra documentation, you can include a short letter with your amended return explaining the timeline of events.

That's good to know the penalties weren't huge. Did you make any estimated payment before the deadline or just wait until you got the K-1 to pay everything?

Can you explain more about depreciation recapture? If most of my K-1 loss is from depreciation, does that change whether I should claim it?

Depreciation recapture happens when you sell a property for more than its depreciated value but less than your original cost. The IRS essentially "recaptures" the tax benefit you received from depreciation by taxing that portion of your gain at a 25% rate rather than the lower capital gains rate. If most of your K-1 loss is from depreciation, you should still claim it now for the current tax benefit. However, be aware that you may face higher taxes later when you sell. It's about timing - you get tax savings now, but potentially pay some back later. Many investors still prefer taking the depreciation deduction because the present value of tax savings now is worth more than paying additional tax years later, especially if you can invest what you save.

Rental activities are generally considered passive by default regardless of material participation, with the exception of real estate professionals. What you're thinking of is the "active participation" standard for the $25,000 special allowance, which is a much lower bar than material participation.

Whether you need to make estimated quarterly tax payments depends on your overall tax situation, not just the property sale. Generally, you need to pay estimated taxes if you expect to owe $1,000 or more when you file your return AND your withholding and credits will cover less than 90% of your current year tax or 100% of last year's tax (110% if your income is over $150,000). For a small property sale of $5,800 with a stepped-up basis, the taxable gain might be small enough that it wouldn't trigger the estimated tax requirement, especially if you have enough withholding from other income sources.

Thanks for explaining that! So it really depends on my overall tax situation rather than just automatically needing to make a quarterly payment because I received a 1099. That makes sense. I'll look at how much I'm already having withheld from my regular job and see if it's likely to cover any additional tax from the sale.

Oh jeez that sounds stressful. What kind of documentation should I be keeping? I honestly don't think my grandmother ever had the property formally appraised when she died.

If you don't have a formal appraisal from the time of your grandmother's death, try to gather: 1. Property tax assessments from around the time she passed away (county tax assessor websites often have historical data) 2. Comparable sales data for similar properties in the area from that time period (a real estate agent might be able to help with this) 3. Any documentation about the property's condition at that time (photos, insurance documents, etc.) 4. Create a written explanation of how you determined the fair market value based on this information The key is having a reasonable basis for whatever value you claim as your stepped-up basis and being able to explain your methodology. Even if it's not perfect, showing you made a good-faith effort to determine the correct value goes a long way in case of questions later.

If there's no amount to report do I still need to include this form when filing my taxes? Or can I just ignore it?

You technically don't need to report a form with zero income on it. The IRS doesn't require you to report income that rounds to $0. Your accountant's advice to not worry about it is correct from a filing perspective. However, I still recommend contacting your bank to fix the classification issue for future years. Otherwise, you might keep getting the wrong form, and if you do earn reportable interest in the future, it could create confusion or even compliance issues with both the bank and the IRS.

It's actually required by law in many states. Landlords have to keep security deposits in interest-bearing accounts separate from their personal funds. In some states, they even have to pay you the interest earned on your deposit annually or when you move out.

Does FreeTaxUSA handle cost basis tracking well if I were to sell stocks next year? Or should I be tracking that separately in something like Excel?

FreeTaxUSA does a decent job with cost basis tracking if your brokerage provides complete 1099-B forms with basis included (most do nowadays). It lets you import those forms directly in higher tier packages. But I still recommend keeping your own separate records. Brokerages can make mistakes, especially with transferred stocks or reinvested dividends. I use a simple spreadsheet with purchase dates, prices, and quantities. When you sell, FreeTaxUSA will ask you to enter or confirm the basis, and having your own records makes this much easier and more accurate.

You can still deduct vehicle registration fees that are based on value (the ad valorem portion), but ONLY if you itemize deductions. With the standard deduction being $13,850 for single filers and $27,700 for married filing jointly in 2023, most people don't itemize anymore unless they have large mortgage interest, state taxes, or charitable donations. For most folks, the standard deduction is way higher than their itemized deductions would be, so trying to deduct vehicle registration doesn't actually help. That might be why FreeTaxUSA doesn't make it super obvious - most users don't need it.