I thought you can't day trade in an IRA because of the limited deposits each year and trading restrictions?

You're right that there are limitations. IRAs have annual contribution limits ($7,000 for 2025 if you're under 50), and you can't use margin or do certain types of options trading. But you absolutely can do active trading within those limitations. Just no pattern day trading using margin, which requires $25,000 minimum equity in regular accounts. Some brokerages also have additional restrictions on IRAs, but the tax benefits can be huge for the trading you can do in there.

Thanks for the suggestion. I actually started doing this after I got confused about the tax implications. Do you happen to have a template you could share? I'm tracking basic info like buy/sell prices and dates, but wonder if I'm missing anything important for tax purposes.

Thanks for this insight! I actually did pull my credit reports and they show the account was charged off in August 2008. Would bank statements showing they stopped attempting withdrawals in July 2008 also help my case? And how exactly do I file Form 982 for a tax year that's so far in the past?

Those bank statements from 2008 showing when they stopped attempting withdrawals would be EXCELLENT evidence! Keep those safe. And you don't need to file Form 982 for 2008 now - that's long past the statute of limitations. What you want to do is file Form 8082 with your current return explaining the inconsistency - that this debt was actually discharged in 2008 based on your documentation, not 2025. Then if you were insolvent at the time (in 2008), you can include Form 982 with your CURRENT return to show that even if the income was recognizable now (which it isn't), you would have qualified for the insolvency exclusion anyway. It's like a double layer of protection.

So who would he even contact at this point? TD Auto Finance for a debt that's 17 years old? Seems like a nightmare to track down.

Do you know if he got the notice by email or regular mail? I'm moving soon and worried I might miss something important from the IRS.

definitely regular mail. the irs almost never emails people (usually its a scam if you get an email claiming to be irs). my brother said the letter was pretty clear and gave him options for how to pay. just keep an eye on your mailbox! if ur moving make sure u fill out a change of address form with the irs - they have a specific form for it called 8822 i think. regular post office forwarding doesnt always work for irs stuff.

Wow that's scary! How much were the penalties? Did you try to get them removed since it was an honest mistake?

Good point! Did you find that you needed different documentation for state vs federal? My state seems even pickier than the IRS about business/hobby distinctions.

Yes, I definitely needed more specific documentation for my state return. My state required me to show a more direct connection between competition participation and actual business revenue. I had to keep a log of new clients who mentioned seeing me compete or found me through competition networking. The state auditor also wanted to see that I was treating the activity consistently as a business on all fronts - separate business accounts for these expenses, formal marketing plans including competitions, and proof that I approached competitions differently than a hobbyist would. It was much more detailed than what the federal documentation required.

That's a really good idea, I hadn't thought about structuring it that way. So basically my business would directly pay the tournament fees and expenses rather than "giving me money" that I then use for tournaments. That seems cleaner from a documentation standpoint. Is your friend's face/name/image used in the business's marketing materials? I'm trying to figure out if I need to create more separation between "me the artist" and "me the player" for this to work properly.

Does depreciation recapture apply even if you didn't actually claim depreciation on your tax returns during the rental period? I have a similar situation but didn't know I was supposed to depreciate the property during the rental phase.

Yes, depreciation recapture applies whether you actually claimed it or not. The IRS considers it "allowed or allowable" depreciation. So even if you didn't claim depreciation deductions during the rental period, you're still required to recapture what you could have claimed when you sell. This is one of the most common mistakes with rental properties. If you didn't claim the depreciation you were entitled to, you essentially lost those deductions but still have to pay the recapture tax. This is why it's always important to properly depreciate rental properties, even if they were previously personal residences.

You can do a 1031 exchange, but ONLY for the business portion of your property. Since your property was a personal residence first and only a rental for a short time, most of your gain would be allocated to personal use and wouldn't qualify for 1031 exchange.