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Have you looked into Innocent Spouse Relief? It might not apply exactly to your situation since it's usually for when a spouse made errors or omissions on a joint return, but worth investigating. The IRS has Form 8857 for requesting this. Also, just curious - did your spouse ever file for any kind of visa or green card when you got married? If so, that paperwork might have enough identifying info that you could use for the ITIN application without needing new documents from them.
I hadn't considered Innocent Spouse Relief - I'll look into that, though I'm not sure if it applies since we haven't filed jointly before. Yes, we did start the green card process, which is why I know they don't have an ITIN or SSN. I'll have to dig through those old immigration papers to see what identifying documentation I might have access to. That's a really good point - there might be copies of their passport or birth certificate in those files that I could use for the ITIN application.
Innocent Spouse Relief might not be the best fit then, since it's mainly for situations where you've already filed jointly. But definitely check those immigration papers! They often include copies of birth certificates, passports, etc. - exactly what you'd need for an ITIN application. Also, don't forget that if you do manage to get the documentation you need, you can file Form W-7 (the ITIN application) attached to your tax return. You don't need to wait for the ITIN to be issued before filing your return. This is a common scenario for non-resident spouses.
Just to add another perspective - if you can't get the ITIN situation figured out, there are still ways to minimize the tax hit from filing MFS. Make sure you're maximizing all available deductions and credits that you're eligible for under MFS status. Look into whether you qualify for the Saver's Credit, education credits if applicable, or if you have any business expenses that could be deducted. Sometimes the difference between MFJ and MFS can be reduced significantly through careful planning.
One thing nobody mentioned yet - if the property is in Alaska, check if it qualifies for any special exclusions. My brother sold inherited land there and it turned out there was some mineral rights issue that affected how it was reported. Also, the local property tax assessor's office in the Alaska borough where your land was located can sometimes provide historical assessments that the IRS will accept for establishing basis.
This is super important! Alaska has some unique property rules. OP should definitely check if the property was in an area with subsurface rights or native corporation interests because that can change everything about how it's reported.
Absolutely right about the subsurface rights. The other thing to consider is whether the property was received via a Native allotment or corporation, as these have different tax treatments than standard inherited property. There are special provisions for Alaska Native lands that don't apply elsewhere. If the property was in a remote area, sometimes the assessment records aren't as detailed as they would be in more populated areas, so you might need to look for comparable sales from newspapers or other records from 2007. Some Alaska boroughs have surprisingly good historical data available online now.
I messed up reporting a 1099-S for inherited property on my 2023 taxes and had to amend. My mistake was I reported my dad's original purchase price as my basis instead of the stepped-up basis from when I inherited it. Cost me hours of stress and a penalty. Make sure whatever software you use has a specific section for inherited property sales - some of the free ones don't handle it well.
Something else to consider is that if your family member has never done owner financing before, they should really consult a real estate attorney to draft the proper documents. I learned this the hard way. Sold some land on owner financing using a template contract from the internet, and ended up with major problems when the buyer died unexpectedly and their heirs didn't want to continue payments. Make sure the contract addresses what happens in case of default, late payments, early payoff, transfer of property, etc. Also, depending on your state, you might need to follow specific foreclosure procedures if the buyer stops paying - it's not always as simple as just taking the land back.
Does title insurance play any role in owner financing? I'm about to sell a small lot and wondering if I should require the buyer to get title insurance even though there's no bank involved.
Absolutely - title insurance is still important in owner financing situations. I typically recommend that the buyer purchase an owner's title policy to protect their interest. As the seller/lender, you might want to get a lender's title policy to protect your interest until the loan is paid off. This ensures that if any title problems emerge during the financing period (like previously unknown liens or easements), there's protection in place. Without a bank involved, it's even more important to make sure these details are handled properly since you don't have a mortgage company's legal team making sure everything is in order.
Don't forget about property tax issues! When I did owner financing on my lakefront lot, we had to be very clear in the contract about who was responsible for property taxes during the financing period. Even though the title wasn't transferred yet, we agreed the buyer would pay the taxes directly.
That's a great point I hadn't considered. Since my family member will still technically be the legal owner while the financing is in progress, they'd be the one getting the tax bills I assume? Would you recommend having the buyer pay the taxes directly to the county, or having them pay my family member who then pays the tax bill?
Just wanted to add something that might be helpful - if you're using commercial tax software, check if there's a software update available. Last year I had a similar issue with not seeing the correct tax year for an extension, and it turned out my software needed an update to show the current filing options. After updating, all the correct years appeared in the dropdown. Some companies push these updates automatically, but others require you to manually check and install them.
Thanks for this suggestion! Which tax software were you using? I'm on TaxAct for Business, and I'm wondering if that might be the issue.
I was using ProSeries when I had that issue. With TaxAct, you should be able to check for updates by going to the Help menu and looking for "Check for Updates" or something similar. If you're using their online version rather than desktop software, try clearing your browser cache or using a different browser entirely. Sometimes these issues can also be related to the subscription level you have - some tax years might not be available if your subscription doesn't cover that period. Might be worth checking with TaxAct support directly if the update doesn't resolve it.
Has anyone successfully filed a 1065 extension online this year? I'm struggling with the same issue as OP but with different software (Drake). Thinking this might be a broader problem with the IRS systems perhaps?
I filed our partnership extension last week using UltraTax and had no issues selecting the 2023 tax year (for filing in 2024). Everything processed normally. So I don't think it's an IRS-wide system issue.
Niko Ramsey
Check your pay stubs from January 2023 and compare to January 2024. I bet you'll see the withholding amount changed even if your salary didn't. Many companies switched payroll providers last year which reset everyone's W4 to the default options (which usually means less withholding). This happened to me too and I didn't notice until September when I did a withholding check. For reference, my wife and I make about $130k combined and we have about 13% withheld to break even. If you're only at 8%, you're definitely going to owe unless you have a bunch of deductions or credits.
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Seraphina Delan
ā¢Is there an easy way to calculate what percentage should be withheld? I always just use the IRS calculator but it's super complicated.
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Niko Ramsey
ā¢The simplest rule of thumb is to look at your effective tax rate from last year (total tax paid divided by total income) and make sure you're withholding at least that percentage. For most middle-class married couples, it's usually between 12-18% depending on your exact situation. The more accurate way is to use the IRS Tax Withholding Estimator on their website. It takes about 15 minutes if you have your most recent pay stubs and last year's tax return handy. It will tell you exactly what to put on your W4 to get the result you want (whether that's breaking even or getting a specific refund amount).
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Jabari-Jo
The same thing happened to me! I called my company's payroll department and they admitted they switched payroll providers in January 2024 and everyone's withholding preferences got messed up somehow. They defaulted everyone to the most basic withholding which wasn't enough for most people.
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Kristin Frank
ā¢Did your company offer to help fix it? Mine just told me it was my responsibility to check my paystubs regularly š
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