But don't you lose flexibility with a 1031? I want to invest the proceeds in my new business venture, not just more real estate. Did your accountant discuss that limitation?

That's absolutely correct - 1031 exchanges definitely lock you into real estate investments, which was fine for my situation since I wanted passive income. For business investments, it wouldn't work. For investing in a new business venture, you might want to look into Qualified Small Business Stock (Section 1202) if you're setting up a C-Corp, or potentially an installment sale with a longer genuine payment period (without the monetization aspect that triggers IRS concerns). Both have limitations but might be less risky than DSTs or monetized installment sales. The right strategy really depends on your specific goals and risk tolerance.

I know someone who did a DST about 6 years ago. They're still getting payments from the trust and haven't been audited...yet. But they're constantly worried about it, especially with the increased IRS funding. Not sure the stress is worth it honestly.

What if there isn't a formal written agreement? My ex and I just verbally agreed I get odd years, she gets even years for claiming our son. Should we put something in writing?

You should definitely put something in writing. It doesn't have to be anything fancy or notarized - just a simple document that both of you sign stating which years each of you will claim the child as a dependent. Having it in writing protects both of you if there's ever a dispute or if the IRS questions either of your returns. Without documentation, these verbal agreements can lead to problems if one parent decides to claim the child in a year they weren't supposed to. The IRS won't get involved in your custody dispute - they'll just follow their tiebreaker rules, which might not align with your verbal agreement.

Yeah this is important! I made this mistake last year and both my ex and I claimed our daughter. Created a huge headache with the IRS and we had to amend returns. Double check that box!!

Exactly! That little checkbox makes all the difference. When you check it, TurboTax will still ask all the questions about the child living with you because that information is still relevant for other tax benefits like filing status. But checking that box ensures you won't both claim the same dependent, which would trigger an automatic review from the IRS.

Good point - what states have their own estate taxes? We're in Michigan if that matters.

As of 2023, twelve states plus DC have estate taxes: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia. Michigan doesn't have a state estate tax, so you're fortunate there! The exemption thresholds vary widely - Massachusetts and Oregon have exemptions as low as $1 million, while states like Hawaii align more closely with the federal exemption. If your stepdad owned property in any of these states, you might still need to file a state estate tax return, even if most assets were in Michigan.

100% agree with this. When my husband died, having a separate estate account made everything so much clearer. Also made it easier to show the court during probate that I was handling things properly.

That's really helpful advice! I'll talk to mom about setting up a dedicated account with the EIN. Better to keep things organized from the start than trying to untangle them later.

That's a great point I hadn't considered. We're in Michigan, and I'm not sure how strict they are about this. Do you know if Michigan has specific requirements about the timing of federal amendments and their impact on current year state returns?

Michigan is actually less strict than some states about this. They don't automatically require state amendments just because you amended federal (though you should if the changes affect Michigan taxable income). For your situation, Michigan won't flag your current return based on the prior year deduction method question alone. However, if your mortgage interest deduction relates to a Michigan property and affects your Michigan property tax credit, you'll want to make sure both years are consistent. I still recommend filing the amendment first or simultaneously with your current return, but Michigan isn't one of the states that will automatically reject or flag your current return over this specific issue.

Not OP but curious - is there any difference in how the major tax software packages handle amendments? I've been using TurboTax for years but their amendment process seems clunky.

That's a really good point I hadn't thought about! Do you know if there's a limit to how much in losses I can claim against my gains in a single year?

There's no limit on using capital losses to offset capital gains in the same year. You can use all your losses to reduce your gains dollar-for-dollar. However, if your total losses exceed your gains, there is a limit on how much net capital loss you can claim against other income (like your salary) - that's capped at $3,000 per year. Any remaining loss above that $3,000 would carry forward to future tax years.

This is super important! I made this mistake last year and set aside way too much for taxes because I was looking at my account's total return instead of my realized gains. Ended up with a much smaller tax bill than expected!