That's helpful, thank you. How much should I expect to pay for a quality preparer who will do both (ensure accuracy and find legitimate deductions)? I don't want to overpay, but I also understand that expertise costs money.

For a situation like yours with a home purchase and some freelance work, expect to pay somewhere between $350-600 for a quality tax preparer, depending on your location and the complexity of your freelance activities. If your freelance work is more involved with lots of expenses and equipment, it might go higher. It's an investment, but a good preparer can often find deductions that more than cover their fee. Just make sure whoever you choose is asking detailed questions about your situation rather than just collecting your W-2s and basic info. The more questions they ask, the more likely they're looking for those legitimate deductions you might qualify for.

What kind of deductions triggered your audit? I'm always nervous about claiming home office or business expenses even though I legitimately work from home half the time.

That's a really good point I hadn't considered. We're not planning to sell anytime soon, but the housing market in our area has been growing pretty rapidly. Do you know if there are any requirements about how long you need to be married to qualify for the full $500k exclusion when selling?

To qualify for the full $500K married exclusion when selling, you need to have owned and lived in the home as your primary residence for at least 2 of the last 5 years before selling. And you need to be married when you sell the house, not necessarily when you bought it. The ownership test and the residence test are separate, so you need to meet both. As long as you're married when you sell and meet those requirements, you should be eligible for the full $500K exclusion regardless of when the marriage occurred during your ownership period.

This is such a good point. My husband and I both owned properties before marriage in high-tax states and got absolutely crushed by this after getting married. We literally pay thousands more in taxes now because of the SALT cap. If you're in a high-tax state, run the numbers carefully.

Thanks for sharing your experience! Did filing the 4810 form trigger any kind of review or did they just accept it and that was that? Also, did you have to wait the full 18 months before considering everything officially "closed" with the IRS?

In our case, they simply accepted the form and we never heard anything from them afterward. There was no additional review triggered by filing Form 4810. We didn't have to wait the full 18 months to distribute assets or anything like that. The form just means they have 18 months to audit if they want to, but it doesn't prevent you from closing the estate otherwise. Our lawyer advised us that after about 6 months with no contact from the IRS, the chances of them looking at anything were extremely low. We considered everything effectively closed at that point, though technically the 18-month window was still open.

When we filed Form 4810 for my grandfather's estate, we sent it certified mail with return receipt so we'd have proof of when the IRS received it. The IRS doesn't typically send any confirmation that they've processed the form or approved your request. The 18-month period starts from when they receive a properly completed form.

Thanks, that's really helpful to know! I'll definitely send it certified mail then. One more thing - did your attorney recommend filing this right after submitting the estate's final tax return, or is there a specific waiting period?

Thanks for mentioning this! I think I might actually have some suspended passive losses from years when my income was too high to claim them. How exactly do I check for this? Is it on a specific form from previous tax returns?

You'd need to look at your Form 8582 (Passive Activity Loss Limitations) from previous tax years. If you had passive losses that couldn't be used in a particular year due to income limitations, they would be carried forward and should be documented there. The unused losses accumulate over the years, and when you dispose of the property in a taxable transaction (like your sale), you can generally use all the suspended losses related to that property. This could significantly reduce the tax impact of your sale and the depreciation recapture.

Cost segregation is great when you're starting out with a property because you can accelerate depreciation on components with shorter lives (5, 7, 15 years instead of 27.5 years for residential). But it's a double-edged sword when selling because you'll face recapture on those components too. The benefit is that personal property components (5-7 year property) get recaptured at your ordinary income rate, not the 25% rate that applies to real property depreciation. So if your tax bracket is lower than 25%, it can help.

1 I actually did replace the HVAC system about 6 months after inheriting it. Would that count? It cost around $9,000. I should have the receipt somewhere in my email.

2 Yes, that absolutely counts! A new HVAC system is considered a capital improvement, not just a repair. Make sure to add that $9,000 to your stepped-up basis. Any significant improvements that extend the life of the property or add value can be included. Just make sure you have that receipt handy in case of an audit.

20 I used a CPA last year for my inherited property sale. Cost me about $350 but worth every penny for the peace of mind. Regular tax preparers at chain places were clueless about stepped-up basis rules.