That's a really good point about business expenses! My partner definitely had work-related costs during those years, like tools and supplies. Do you know if they can still claim those deductions when filing so late? And did your sister's husband end up having to file for all the missing years?

Yes, they can still claim legitimate business deductions when filing late returns. The key is having some form of documentation or reasonable estimates that could be justified if questioned. Even if they don't have perfect records, they should make reasonable estimates of business expenses rather than filing as if they had none. My sister's husband ended up filing 7 years back (which was what the IRS requested when they contacted him). The IRS was primarily concerned with the most recent years and years where he had significant income. They worked out a payment plan and the whole process was less catastrophic than they initially feared.

This is true but a bit alarmist. Yes, improperly claiming exempt is an issue, but the IRS distinguishes between tax avoidance (legal but aggressive) and tax evasion (illegal). Most cases like this end up as civil matters with penalties and interest, not criminal tax evasion charges.

Oh that's interesting! He did do some weekend yard work for our neighbor and got paid about $300 cash throughout the summer. Does that count as self-employment? And would that change whether my parents can claim him?

The $300 from yard work would technically count as self-employment income, but since it's under the $400 threshold for self-employment tax, it doesn't trigger a required filing on its own. Your brother would add this to his total income though if he does file. This doesn't change your parents' ability to claim him as a dependent at all. The dependent qualification is based on age, relationship, residency, and support tests - not on whether the dependent files their own return or how much they made (within certain limits that your brother is well under).

This is so true! I wish someone had taught me about taxes when I was younger. I was completely lost when I had to file on my own for the first time in college.

How many trades do you need to do to qualify as a "trader" for the IRS? I do about 20-30 trades a month. Is that enough?

There's no specific number that automatically qualifies you. The IRS looks at several factors: trading frequency (daily is best), holding periods (shorter is better), time devoted to trading (more is better), and whether you depend on the income. Your 20-30 trades monthly might be enough if they're your primary activity and you hold positions briefly. The courts have generally supported trader status for those doing hundreds of trades annually, spending several hours daily on trading, and holding positions for very short periods. But it's a facts-and-circumstances test, not just a number threshold. I'd recommend consulting a tax pro who specializes in trader taxation since the benefits can be substantial but the requirements are strict.

Most brokers can export your trades in a format TurboTax can import. Look for a .TXF file export option on your broker's tax documents page. If they don't offer that, you might be able to download your transactions as a CSV and convert it using a third-party tool.

Thanks for the tip! Just found the .TXF export option on my broker's website. That's going to save me hours of manual data entry. I was dreading having to type in all those trades one by one.

Good point! But I believe transfers between spouses are usually exempt from due-on-sale clauses under the Garn-St. Germain Act. Still worth checking your specific mortgage terms though.

Thanks for the info! We haven't been taking depreciation deductions for that rental period, but I didn't realize we might still need to deal with "allowed or allowable" depreciation. The room was about 15% of the total square footage. Do you know if we need to do separate calculations for each ownership period (her alone vs. after marriage), or can we just do one calculation for the whole ownership period?

You'll need to handle the depreciation recapture for the portion that was rented (15% in your case) regardless of whether you took the deductions or not. The IRS considers depreciation to be "allowed or allowable" even if you didn't claim it. For your second question, you'll do one continuous calculation covering the entire ownership period. The fact that you got married during ownership doesn't create separate calculation periods. What matters is the total qualified use as a primary residence. You'll track the entire ownership timeline, identify the rental period for that 15% portion, and then calculate accordingly. The marriage itself doesn't reset or change the calculation method - it just potentially increases your exclusion amount from $250K to $500K if you both meet the use test.

Thanks! I'll give H&R Block a try. I've got all our documentation organized, including the substantial kitchen renovation we did that should increase our basis. Anything specific I should watch for when entering the info about the pre-marriage ownership period?

When entering the pre-marriage ownership period, make sure you correctly identify who owned the property during each timeframe. H&R Block will specifically ask about the ownership history. Be careful to enter the original purchase date and amount accurately for the spouse who owned it first. For your kitchen renovation, definitely include that as it increases your basis and reduces your capital gain. The software will prompt you to enter major improvements separately from the purchase price. Also, don't forget to include selling costs (like realtor commissions and closing costs) as they also reduce your taxable gain. The software does a good job walking you through all of this, just be methodical about following each step.