Wouldn't the paper option take way longer to process though? I'm worried about making things worse by having the payment not get credited before I file my return in April. Is there a way to track when they receive and process a paper payment?

Yes, paper payments do take longer to process - typically 2-3 weeks, sometimes more during busy periods. If you're planning to file your return soon, the electronic payment through Direct Pay (using "Balance Due" option) would be much faster. For tracking a paper payment, the IRS doesn't provide direct tracking like a package. The best way to confirm they received it is by setting up an online account at IRS.gov and checking your tax account transcript, which will show when payments post to your account. You can also call the IRS, but as others have mentioned, the wait times can be very long. If you do mail a payment, I'd strongly recommend using certified mail with a return receipt so you at least have proof of when you sent it.

Does the app charge extra fees like when you pay taxes with a credit card on those third-party processors? Or is it actually free like regular Direct Pay on the website?

Thanks for mentioning that about paying before filing the amendment! That's smart - I didn't realize I could stop the interest that way. Do you happen to know roughly how much the interest would be? The capital gains will add about $1,400 to my tax bill I think.

The IRS interest rate has been around 7-8% recently, so if you're looking at a $1,400 tax bill and it's been roughly 2 years since the original due date (April 2023), you'd be looking at approximately $200-230 in interest. The sooner you pay, the better though. The interest compounds daily, so it keeps growing. One other tip - when you make the payment online, be sure to select the correct tax year (2022) and payment reason (amended return) so it's properly applied to your account.

You only need to file Form 1040-X (not a new 1040). However, you should include any schedules that are changing - in this case probably Schedule D and Form 8949 for the capital gains. Unfortunately, you can't e-file amended returns for 2022 yet. You'll need to print and mail it. Make sure to include copies of any new documents (like your 1099-B) that support the changes you're making. And as others mentioned, consider making the payment online even though you're mailing the form.

Thank you for this simple breakdown! I think I can work with this approach. Do I need to adjust for any improvements we made to the house over the years? We did a kitchen remodel about 12 years ago and added a bathroom around the same time.

Yes, major improvements should definitely be factored in. For the kitchen remodel and bathroom addition, you would take the cost of those improvements, multiply by your business use percentage, and then depreciate that amount over 27.5 years starting from the year the improvements were completed. You'll want to add this additional depreciation to your original calculation. If your home office included any portion of these improved areas, that would increase your annual depreciation from the point those improvements were made. It makes the calculation a bit more complex, but still very doable even without all your old returns.

Yes there definitely can be. The IRS requires you to recapture ALL depreciation that was "allowed or allowable" - meaning even if you didn't claim it but could have, you still have to recapture it. If you underreport, you could face accuracy-related penalties plus interest on the underpaid taxes.

Thanks for this info. Did your accountant have you include any specific documentation with your tax return or did you just keep the receipts in case of an audit? And did you have to explain the circumstances anywhere on the actual return?

I just kept all receipts and the agreement with the homeowner in my files - didn't submit them with the return. My accountant did add a brief note in the description field for the "other business expenses" line that said "work-related injury medical costs" but nothing detailed. If you use tax software, there's usually a field for descriptions where you can briefly note what the expense was for. The key is having your documentation organized and ready if they ever ask about it. I keep a dedicated folder for each tax year with all my receipts and any unusual expense documentation.

This is good advice. I learned this the hard way too. Got a proper occupational policy after paying out of pocket for a back injury. The monthly premium is tax deductible too!

Wait, so if the buyer put down more than 30%, I can't use installment sale reporting? My buyer put down 25% so I'm close to that threshold. Can you explain more about how this works?

There's no hard 30% rule that disqualifies you from installment sale treatment. I should have been clearer - I was thinking of the old "substantial payment" rules that aren't relevant anymore. You can use installment sale reporting regardless of the down payment amount. However, a large down payment will result in more taxable gain in the first year. If you received 25% down, then approximately 25% of your total gain would be taxable in the year of sale (assuming your gross profit percentage applies evenly).

My tax software doesn't seem to separate this stuff automatically. Will it prompt me for the breakdown between principal and interest, or do I have to figure that out myself?