That's an interesting idea I hadn't thought about! He's 52, so he could do the $8,000 contribution. Would he be able to just move some of the CD money directly into a Roth or would he need to wait until the CD matures? Also, are there income limits for Roth contributions that might affect him?

He would likely need to wait until the CD matures unless he's willing to pay an early withdrawal penalty, which would probably negate some of the tax benefits. Yes, there are income limits for Roth IRA contributions. For 2025, a single filer starts to see reduced contribution limits at around $146,000 and is completely phased out at $161,000. With his $75K self-employment income plus $12K in interest, he should be well under those limits, so he'd be eligible for the full contribution.

This is super important advice! I didn't make estimated payments on some investment income last year and got hit with an underpayment penalty. It wasn't huge but still annoying to pay extra for no reason.

That's really helpful about the mileage - I didn't even think about that! For repairs, I replaced the water heater about 2 weeks before the tenants moved in. Would that count as a rental expense or would I need to depreciate it?

The water heater replacement would likely be considered a capital improvement rather than a repair since it's replacing an entire unit and extends the life of the property. Since you did it just 2 weeks before renting, you can include it in your depreciable basis for the rental property. For smaller repairs like fixing a leaky faucet or painting, those would be fully deductible in the year you paid for them. The timing (2 weeks before rental began) is close enough that the IRS would generally accept these as rental expenses since they were clearly in preparation for renting.

For a 3-year rental period, all the same deductions apply, but there's one major difference to be aware of: when you sell the house later, you might partially lose your primary residence capital gains exclusion. The rule is you need to have lived in the house as your primary residence for at least 2 of the 5 years before selling to get the full $250k/$500k capital gains exclusion. With a 3-year rental period, you'll need to move back in for at least 2 years before selling to get the full exclusion.

Do you know if there's any way to still qualify for the American Opportunity Credit in grad school? I've only used 3 years of my 4-year limit during my undergrad.

Not typically. The American Opportunity Credit is specifically for "the first 4 years of postsecondary education," which the IRS considers to be undergraduate education. Once you're in a graduate program, you're generally considered beyond those first 4 years, even if you didn't use all 4 years of the credit during your undergrad. Graduate and professional degree programs almost always qualify for the Lifetime Learning Credit instead. The LLC has no limit on the number of years you can claim it, which is good for longer graduate programs, but it calculates to a smaller credit amount (20% of up to $10,000 in expenses versus 100% of first $2,000 plus 25% of next $2,000 for the AOC).

This is super important! My university does the same thing and it confused the heck out of me. Check your actual payment dates against what's on the 1098-T. I had to create a spreadsheet showing when I actually made payments vs what semester they were for to get it right.

Thanks, this is really helpful! I've been using the standard mileage deduction since it seemed simpler. Does that mean I can't claim ANY loss on the Form 4797 at all? Or just that I need to calculate it differently?

If you've been using the standard mileage deduction, you cannot claim an additional loss on Form 4797 for the business portion of your vehicle. The standard mileage rate (65.5 cents per mile for 2025) already includes components for depreciation, maintenance, insurance, fuel, etc. The IRS considers that you've already been compensated for the gradual loss in value through the standard mileage deduction you've been taking. To claim an additional loss on Form 4797 would be counting the same expense twice, which is not allowed.

Bad idea. Business vehicle deductions and form 4797 are actually audit triggers. My cousin tried exactly what you're suggesting in 2023 and got audited last year. Ended up owing the original tax plus penalties and interest. Not worth it.

This is great advice! I second this - I'm in California and found some state-specific credits for small businesses that my regular accountant totally missed. Worth checking your state's dept of revenue website.