What about amended returns? I'm in a similar situation but need to amend my 2023 return. Should I wait until my original 2023 return finishes processing before filing the amendment?

Yes, for amended returns you absolutely need to wait until the original return has been processed before filing the amendment. The IRS can't process an amendment to a return that hasn't been processed yet - it would just create more confusion in the system. If you file an amendment before the original return is processed, it will likely be rejected or get stuck in processing limbo. Wait until you can verify your original return has been processed (check your transcript or account online) before submitting Form 1040-X.

I tried using the Taxpayer Advocate Service but they're completely overwhelmed right now. I submitted my request 3 months ago and still haven't been assigned an advocate. Might be better in some locations than others though.

Thank you for mentioning this. If I end up owing the full amount, a payment plan might be my only option. Do you know if they run a credit check or anything for these payment plans?

They don't run a credit check for standard payment plans. The IRS offers short-term plans (paying within 180 days) with no setup fee, or long-term plans with a small setup fee. For amounts under $10,000, it's usually automatic approval as long as you've filed all required tax returns. The current interest rate is around 7% annually, plus a small failure-to-pay penalty of 0.25% per month while you're on the plan. Still way better than ignoring it and getting hit with the full 0.5% monthly penalty plus potential collection actions.

This is really important advice. My parents almost fell for a scam last year that looked EXACTLY like a real IRS letter. The only thing that tipped me off was they wanted payment through Zelle.

The letter does have CP2000 in the corner and it doesn't ask for any weird payment methods, so I think it's legitimate. But thank you for the warning - I've heard about those scams too and they're getting super sophisticated.

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.

Oh no, I didn't realize I'd owe self-employment tax too! How much should I expect to pay roughly on $4,800? I haven't saved anything specifically for taxes since this is the first I'm hearing about this.

For $4,800 in 1099 income, you'll owe approximately $735 in self-employment tax alone (15.3% of your net earnings). Then you'll also owe your regular income tax on top of that, which depends on your tax bracket and other income you might have. If this is your only income for the year, some of it might be offset by your standard deduction, but you'll definitely still owe the self-employment portion. There's a small deduction for half of your self-employment tax, but you'll still need to prepare for a tax bill. Consider making an estimated tax payment if possible to avoid underpayment penalties.

I used FreeTaxUSA last year for a very similar situation (research stipend on 1099-MISC). Federal filing WITH Schedule C was completely free. State filing was $14.99, but that was it - no surprise upgrades or "premium" features needed for the 1099 income. Their interface for Schedule C was actually pretty straightforward too.

Thanks for this specific example! Do you physically mail in that statement or is there a way to include it when filing electronically? We're in California, and the payments are coming through In-Home Supportive Services (IHSS) which I believe is a Medicaid waiver program, but I need to double-check.

When I file electronically, I include that statement in the section for "additional information" or "miscellaneous statements" - most tax software has a place for this. If your software doesn't have that option, you can also mail the statement separately to the IRS after e-filing, with your name, SSN, and tax year clearly marked. California's IHSS is indeed funded through Medicaid (called Medi-Cal in California) and typically qualifies for the difficulty of care exemption. Just make sure your fiancé keeps documentation of the payment source in case of questions later. The program administrators should be able to provide a letter confirming it's a Medicaid waiver program if needed.

You're right that it's not automatic, but most Medicaid waiver programs DO qualify. The fact that you had to pay taxes might mean your program wasn't a qualified Medicaid waiver program. Did you check specifically? We were incorrectly paying taxes on exempt income for TWO YEARS before we realized our mistake!