Don't forget about IRS Publication 551 which specifically covers "Basis of Assets" - it has examples for different scenarios. The most important thing to remember is that distributions from rental activities typically aren't affecting your basis the way you might think. For regular rental income: 1. Rental income doesn't reduce your basis 2. Rental expenses don't increase your basis (except capital improvements) 3. Depreciation DOES reduce your basis 4. Money you take out of the rental business doesn't affect basis This is different from partnership distributions where distributions can reduce your basis. Are you operating this as a sole proprietor or through an entity? That makes a big difference in how basis is calculated and tracked.

I'm actually dealing with this right now for a property I sold last year. One tip nobody mentioned yet: KEEP EVERY RECEIPT for improvements! I mean everything. New roof? Keep it. New appliances? Keep it. Even small stuff like cabinet hardware adds up. When I sold my rental last year, I was able to add almost $67k to my basis from improvements I made over 8 years. That significantly reduced my capital gains tax. I used a simple Google Sheet to track: - Original purchase price - Plus: Improvements (itemized by date) - Minus: Depreciation taken each year - Equals: Adjusted basis at time of sale The IRS allows you to include closing costs in your basis too! Don't forget those.

Does anybody know if the IRS charges interest when they owe YOU money? Like if they're taking forever to process a refund or in this case where they discovered they owe more. Seems only fair since they charge US interest when we owe THEM...

This is actually more common than you'd think! The IRS has gotten much better at automatically catching missed credits and deductions in recent years. With married filing jointly and kids as dependents, my first guess would be that you either missed or miscalculated the Child Tax Credit, Additional Child Tax Credit, or potentially the Earned Income Credit if your income falls within the qualifying range. The fact that they're processing an 8x larger refund suggests it's probably one of the major credits rather than just a simple math error. Don't panic - if the IRS is giving you more money, they've already done the math and verified it on their end. I'd definitely wait for that explanation letter before calling. It will break down exactly what they adjusted and why. Once you have that letter, you can compare it line-by-line with your original return to understand what happened. If everything checks out (which it probably will), then you can breathe easy knowing you legitimately qualified for more money than you originally claimed. The only thing I'd be cautious about is making sure you don't spend the money immediately just in case there's some kind of error that needs to be corrected later, but honestly, IRS adjustments in the taxpayer's favor are usually pretty solid.

One thing to consider is that MTM doesn't just eliminate long-term capital gains treatment - it also affects wash sale rules. With MTM, wash sale restrictions don't apply to you anymore, which can be a huge advantage for active traders who frequently trade the same securities. Last year, I had significant losses that were disallowed due to wash sales. If I had MTM status, I could have claimed all those losses immediately. Just something else to factor into your decision.

As someone who went through the MTM election process last year, I want to emphasize how important it is to get professional guidance on this decision. The tax implications are complex and can significantly impact your overall tax liability. One critical point that hasn't been fully addressed - if you're considering MTM for 2025, you need to make that election by the due date of your 2024 tax return (including extensions). You can't just decide mid-year in 2025 that you want MTM treatment. Also, regarding your NVDA shares - the previous comment about them being "marked to market" at year-end 2024 is correct. Any unrealized gains on December 31, 2024 would be treated as if you sold and repurchased them on January 1, 2025. This is called the "deemed sale" rule. For your specific situation with substantial NVDA gains, I'd strongly recommend running the numbers both ways - selling in 2024 to lock in long-term capital gains treatment versus keeping them and having them converted to ordinary income under MTM. The difference in tax rates (0%, 15%, or 20% for long-term capital gains versus up to 37% for ordinary income) could be substantial depending on your income level. The entity structure option (LLC/S-Corp) is possible but adds complexity and costs. You'd need to ensure proper business purpose and substance, maintain separate books and records, and the entity would need to qualify for trader status independently.

The IRS is so backed up rn its not even funny. My friend works there and says they're still processing returns from last summer 😬

Ugh, I feel your pain! Been dealing with a similar 810 freeze since April and it's absolutely maddening. The fact that your transcript shows everything processed correctly but they're still holding onto $6,541 is just cruel. At least you got the in-person verification done - I'm still waiting for my appointment. Have you tried reaching out to your congressperson's office? I know it sounds extreme but sometimes they can light a fire under the IRS when normal channels aren't working. The taxpayer advocate service might also be worth a shot since you're going on almost a year now 😤

Has anybody used TurboTax to handle this kind of mixed-use property situation? I'm wondering if it can correctly track the suspended passive losses from year to year when a property changes from full rental to mixed-use...

I want to add another important consideration that hasn't been mentioned yet - the short-term rental classification could actually work in your favor for future years. Since you mentioned most rentals will be weekend getaways averaging less than 7 days, this income would be classified as non-passive under IRC Section 469(c)(7) if you provide substantial services. If you're actively managing the property (cleaning, maintenance, guest services, etc.) and the average rental period is 7 days or less, the rental income becomes ordinary business income rather than passive rental income. This means you could potentially use those suspended passive losses from last year against OTHER passive income sources, while treating your current short-term rental as active business income. However, this creates a mixed situation where your prior losses remain passive (from when it was traditional rental) while current income is active - so they still can't offset each other. But it might open up better deduction opportunities for current year expenses and depreciation since you'd be treated as actively engaged in the rental business. Worth discussing with a tax professional who understands both passive activity rules AND short-term rental classifications!