Don't forget that you can also apply to have the penalty waived if this is your first time being assessed a penalty! The IRS has a First Time Abatement policy that many people don't know about. If you've had a clean tax record for the past 3 years (filed and paid on time), you can often get the penalty removed entirely. Worth a shot before you pay it!

Just sharing my experience - I messed up my rental property quarterly payments too last year. Used TurboTax this year and they have a feature that helps you calculate your quarterly estimates for next year AND sends you reminders when payments are due. Been super helpful for keeping me on track!

Just a heads up, you should also look into making estimated quarterly tax payments for next year to avoid this situation again. Since you have that K1 partnership income without withholding, you're supposed to be making payments throughout the year. The IRS expects you to pay as you earn. If you don't make those quarterly payments, you might end up with underpayment penalties on top of the big tax bill next year. The due dates are April 15, June 15, September 15, and January 15 of the following year.

Besides the quarterly payments, you might want to look at increasing your W2 withholding to help cover some of that self-employment tax. I had a similar situation and asked my employer to withhold an additional $500 per paycheck. It didn't completely eliminate my quarterly payments, but it reduced them enough to make them manageable.

One thing nobody mentioned yet is that different components of your rental property can be depreciated on different schedules. The house structure is 27.5 years, but appliances, carpeting, and some fixtures can be depreciated over 5-7 years, which accelerates your deductions. This is called "component depreciation" or "cost segregation" and can significantly increase your deductions in the early years. Might be worth looking into if your rental has a lot of new appliances or recent renovations.

Dont forget that when u inherited the property, u get whats called a "stepped-up basis" to the fair market value on the date of death. So even if your grandmother paid $50k for it decades ago, your basis is the current $225k value. This is HUGE for calculating depreciation and eventual capital gains!

Another option to consider is contacting the Taxpayer Advocate Service (TAS). They're an independent organization within the IRS designed to help taxpayers with problems that haven't been resolved through normal channels. If your audit has been ongoing for 2+ years with no resolution, you almost certainly qualify for their help. Their services are completely free, and they can often cut through red tape that's impossible for individual taxpayers to navigate. Go to taxpayeradvocate.irs.gov to find your local office and submit Form 911 (Request for Taxpayer Advocate Service Assistance). I had a similar situation with an audit that dragged on for 18 months, and they helped resolve it within 6 weeks.

I was in almost the exact same situation (2021 audit, dragged on forever). What finally worked for me was contacting my Congressional representative's office. Most people don't realize that ALL members of Congress have staff dedicated to helping constituents with federal agency issues - including IRS problems. I called my rep's office, explained the situation, and they had me fill out a privacy release form. Their caseworker contacted the IRS on my behalf, and suddenly things started moving. The audit was completed within 3 weeks after being stalled for over a year. It's completely free, and the IRS prioritizes congressional inquiries because, well, Congress controls their funding. Just Google your representative + "constituent services" to find contact info.

Something similar happened to my brother. It's because the exchanges report to the IRS on a 1099-K (for crypto) or 1099-B (for stocks) showing the gross proceeds from sales, but often don't include your cost basis. So the IRS assumes your basis is $0 and taxes you on the entire amount. Make sure you fill out Form 8949 with ALL your transactions, showing the correct cost basis for each one. Then submit it with a written explanation. If you're dealing with a LOT of transactions, you can summarize them but be prepared to provide details if asked.

I had this nightmare last year! What worked for me was: 1) Don't ignore it, definitely respond within the timeframe on the notice 2) Get ALL your transaction records together - every purchase and sale 3) Create a spreadsheet showing date purchased, purchase price, date sold, sale price, and gain/loss for each transaction 4) Complete Form 8949 correctly - this is super important 5) Write a clear letter explaining the error If you have a ton of transactions, the IRS actually allows you to attach a spreadsheet instead of listing each one on separate 8949 forms. Just make sure the spreadsheet has all the required columns from the form.