Is this true even for inherited properties? I thought the primary residence exclusion only applied if you actually owned the home, not if you inherited it?

The primary residence exclusion applies to any home you own and use as your main home, regardless of how you acquired it. If you inherited the property and then lived in it as your primary residence, those years of use count toward the 2-out-of-5 year requirement. What matters is ownership and use, not how you originally obtained the property. If you inherited it and immediately sold it without living there, then no, you wouldn't qualify. But if you lived in the inherited house after receiving it, those years absolutely count toward potential primary residence exclusion.

You can get a retroactive appraisal! I was in this exact situation. Find a qualified appraiser who specializes in retroactive valuations - they'll research comparable sales from that time period to establish what the property was worth when you inherited it. It costs a few hundred dollars but can save you thousands in taxes by properly establishing your basis.

That's super helpful - I had no idea retroactive appraisals were even a thing! Did you have any issues with the IRS accepting a retroactive appraisal when you filed your taxes? I'm worried they might question it since it wasn't done at the actual time of inheritance.

Is there an easy way to calculate what percentage should be withheld? I always just use the IRS calculator but it's super complicated.

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).

Did your company offer to help fix it? Mine just told me it was my responsibility to check my paystubs regularly 🙄

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.

Education credits are explicitly not allowed for MFS filers, unfortunately. I learned that the hard way last year. There are actually a ton of credits you can't get with MFS status, which is why it's usually so much worse than MFJ or HoH.

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.

Which software did you end up using that worked? I'm in a similar situation for 2024 and worried about making the same mistake.

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.

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?