I hadn't thought about the state education department! That's an excellent suggestion. Did you have to request the letter specifically or did they have some kind of standard form they provided?

I had to make a specific request for the enrollment and tuition verification letter. Most state education departments have procedures in place for closed institutions, but you need to ask for exactly what you need. When you contact them, be sure to request both enrollment verification (with specific dates) and an itemized statement of all tuition and qualified expenses paid during the tax year. Be prepared to provide proof of your son's identity and your right to access his records, like a birth certificate or his signed authorization if he's over 18.

This! 100% this! Same thing happened with my brother's trade school. The main website was gone but the separate student portal system (run by a third-party) stayed up for document access. Worth checking if they used common systems like Blackboard, Canvas, or dedicated student financial portals.

But don't you lose flexibility with a 1031? I want to invest the proceeds in my new business venture, not just more real estate. Did your accountant discuss that limitation?

That's absolutely correct - 1031 exchanges definitely lock you into real estate investments, which was fine for my situation since I wanted passive income. For business investments, it wouldn't work. For investing in a new business venture, you might want to look into Qualified Small Business Stock (Section 1202) if you're setting up a C-Corp, or potentially an installment sale with a longer genuine payment period (without the monetization aspect that triggers IRS concerns). Both have limitations but might be less risky than DSTs or monetized installment sales. The right strategy really depends on your specific goals and risk tolerance.

I know someone who did a DST about 6 years ago. They're still getting payments from the trust and haven't been audited...yet. But they're constantly worried about it, especially with the increased IRS funding. Not sure the stress is worth it honestly.

That's a great point I hadn't considered. We're in Michigan, and I'm not sure how strict they are about this. Do you know if Michigan has specific requirements about the timing of federal amendments and their impact on current year state returns?

Michigan is actually less strict than some states about this. They don't automatically require state amendments just because you amended federal (though you should if the changes affect Michigan taxable income). For your situation, Michigan won't flag your current return based on the prior year deduction method question alone. However, if your mortgage interest deduction relates to a Michigan property and affects your Michigan property tax credit, you'll want to make sure both years are consistent. I still recommend filing the amendment first or simultaneously with your current return, but Michigan isn't one of the states that will automatically reject or flag your current return over this specific issue.

Not OP but curious - is there any difference in how the major tax software packages handle amendments? I've been using TurboTax for years but their amendment process seems clunky.

Good point - what states have their own estate taxes? We're in Michigan if that matters.

As of 2023, twelve states plus DC have estate taxes: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia. Michigan doesn't have a state estate tax, so you're fortunate there! The exemption thresholds vary widely - Massachusetts and Oregon have exemptions as low as $1 million, while states like Hawaii align more closely with the federal exemption. If your stepdad owned property in any of these states, you might still need to file a state estate tax return, even if most assets were in Michigan.

100% agree with this. When my husband died, having a separate estate account made everything so much clearer. Also made it easier to show the court during probate that I was handling things properly.

That's really helpful advice! I'll talk to mom about setting up a dedicated account with the EIN. Better to keep things organized from the start than trying to untangle them later.

That's a really good suggestion about the percentage-based withholding! I never even considered that possibility. Since the amount does seem to be consistently around 0.25% of his gross pay, that explains why it's so weirdly consistent. I'll have him specifically ask HR about this tomorrow. If they entered 0.25 when they meant 25, that's a massive error affecting everyone's taxes!

Glad I could help! This is exactly the kind of data entry error that can slip through, especially if the payroll person isn't carefully reviewing the resulting withholding amounts for reasonableness. If multiple employees are having the same issue, it strongly suggests a system-wide problem rather than individual W-4 issues. One more thing - make sure your husband documents all communications with HR about this. If the IRS questions the underwithholding or assesses penalties, having proof that you identified and tried to correct an employer error can help with penalty abatement.

Yes! Request a First Time Penalty Abatement if you haven't had tax issues in the prior 3 years. The IRS is generally pretty reasonable with this, especially if you can document that the error was with your employer's payroll system and not your withholding choices.

Thanks for the info! I didn't know about the First Time Penalty Abatement option. We've always filed and paid on time before this, so sounds like we should qualify. Gonna call the IRS tomorrow and request this.