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.

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 good point! I'll double check all the credits. I don't think I should qualify for education credits since I haven't been in school for a few years, but maybe something got checked accidentally. I didn't get any unusual questions about education expenses though. Is there a way to see a summary of which credits and deductions were applied on my return? I'm using TaxSlayer if that helps.

In TaxSlayer, you should be able to view a summary of your return before filing. Look for the "Review" or "Summary" section, which typically shows all the credits and deductions that were applied. Pay special attention to any refundable credits like EITC, American Opportunity Credit, or Child Tax Credit. You can also look at the actual tax forms that are generated - specifically check Schedule 3 and Form 1040 to see which lines have amounts that might be surprising. If you see amounts on lines for credits you don't think you qualify for, that's a red flag.

Tax software rarely makes actual calculation errors - they're pretty rigorously tested. It's almost always user input errors. The most common mistakes I see (I help friends with taxes) are: 1. Entering the same income twice 2. Mixing up which numbers go in which fields (like the withholding error OP probably made) 3. Missing a form entirely 4. Clicking yes/no incorrectly on a qualifying question

Thanks for clarifying. That makes me feel better about my return. I was starting to wonder if I needed to redo everything in another software just to double check the calculations!

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.

Thanks for mentioning this! She definitely meets all those requirements - she's a sophomore working on her bachelor's degree and this will be her second time claiming the AOTC. Her school sent a 1098-T showing about $9,500 in qualified tuition and expenses, so I think we're good on that front. I was just really confused about how much of it she could actually get back as a refund since her tax liability is only around $300 after her standard deduction.

Based on what you've shared, your sister should receive the full benefit of the AOTC. The $300 tax liability will be completely eliminated by the non-refundable portion of the credit, and she'll get the full $1,000 refundable portion back as a refund. With $9,500 in qualified expenses, she qualifies for the maximum $2,500 AOTC (calculated as 100% of the first $2,000 in expenses plus 25% of the next $2,000). It's great that she's maintaining her education while working - this credit is specifically designed to help students in her situation!

This is so important! My daughter's school reports in Box 2 (amounts billed) rather than Box 1 (payments received). We had to adjust what was on the 1098-T to reflect when payments were actually made. The rule is you claim the AOTC in the year you make the payment, not when you're billed or when classes are taken.