Thanks for all these details! I've been trying to keep track of everything but wasn't sure about the mileage. How do you handle splitting things like the mortgage interest between the rental side and my side? Is it just 50/50 since it's equal units, or is there more to it?

Generally for a duplex with equal units, a 50/50 split is acceptable and what most people do. However, if one unit is significantly larger than the other (like one is 60% of the total square footage), you should use that ratio instead. For tracking mileage, I use a simple app that lets me log trips specifically for rental property purposes. You'll want to record the date, starting/ending mileage, and purpose of each trip. At tax time, you can claim the standard mileage rate (which changes yearly) for all those miles. It adds up fast and is often overlooked!

And if you use tax software instead of a CPA, you can still deduct the cost of the software proportionally for the rental property part! I just allocate based on how many forms are for personal vs rental.

This is super important! My friend had this exact situation and ended up in small claims court because she couldn't immediately refund the prepaid rent when the tenant left early. Make sure your lease specifically addresses this!

That's a really good point about small claims court! I hadn't even thought about the legal implications. I'd suggest putting a clause in the lease that clearly states the prepaid rent is non-refundable, or alternatively, spell out exactly how refunds would be calculated including any penalties for breaking the lease early. The more specific you can be in the lease, the better protected you'll be if things go south.

That's actually what I do with my tenants! Quarterly payments are much easier to manage than monthly but don't create as many tax headaches as annual payments. Plus if something goes wrong, you're only out a few months rather than a whole year.

Is it true that the IRS is more likely to audit earned income tax credit claims than millionaires now? I read something about that and it seemed outrageous.

Yes, that's unfortunately accurate. EITC audits are largely automated and can be completed quickly, which makes them an easy target for meeting statistical goals. A revenue agent might complete 50-100 EITC audits in the same time it takes to thoroughly examine one complex high-wealth return. The IRS uses a cost-benefit analysis that looks at "return on investment" for audit hours. While a wealthy taxpayer audit might ultimately recover more money, the hours required are exponentially higher. Combined with the staffing shortages in specialized divisions, this creates a system where lower and middle-income taxpayers face proportionally higher audit rates than they should.

Some of the funding is supposed to go toward hiring specialized agents for high-income and business audits, but there's a huge training gap. Even if they hire people now, it takes 2-3 years to get them fully trained on complex audit issues like partnership returns and international tax. Meanwhile, experienced agents are retiring or leaving for private sector jobs that pay 2-3x their government salary.

That makes sense, but it still feels like such a fundamentally unfair system. Really appreciate the explanation! I guess we shouldn't expect this to be fixed anytime soon then.

I tried creating an IRS account and they wanted me to verify my identity through ID.me which required uploading my driver's license and doing a video selfie. Is that normal or did I click on something phishy?

That's completely normal. The IRS uses ID.me as their identity verification service. They do require documents like your driver's license and a video selfie to confirm you're really you. It feels intrusive, but it's their official process to protect tax data. The alternative verification methods (like answering questions about your credit history) sometimes don't work for everyone, so the ID verification becomes necessary. Once you get through that initial setup though, accessing your tax records becomes much easier for future filings.

Wait really? So if it gets accepted anyway, there's no problem? I've been stressing for no reason?

Yes, there are income limits that affect both the Child Tax Credit and the Child and Dependent Care Credit. For the Child and Dependent Care Credit, the percentage of expenses you can claim starts decreasing when your adjusted gross income (AGI) exceeds $15,000, and continues to decrease as your income rises. At $160,000 combined income, you're getting a much lower percentage of your expenses covered by the credit than someone with lower income. Additionally, the Child Tax Credit begins to phase out for married couples filing jointly when your modified AGI reaches $400,000, but the dependent care credit is much more affected by income levels in the range you mentioned.

I've done both. The Dependent Care FSA lets you set aside up to $5,000 pre-tax for childcare expenses if you're married filing jointly. That's better than the tax credit for most people in higher tax brackets because it reduces your taxable income directly. You can actually use both the FSA and the tax credit, but not for the same expenses. So if you have $10,000 in childcare expenses, you could use $5,000 for the FSA and then claim the remaining $5,000 for the tax credit (subject to the limits).