That's interesting! So with the 14-day rule, could we still deduct all the property taxes and mortgage interest on Schedule A as a second home? Also, does the 14-day rule still apply if you're using a property management company or Airbnb to handle the rentals?

Yes, with the 14-day rule, you can still deduct all eligible property taxes and mortgage interest on Schedule A as a second home, subject to the usual limits like the SALT cap. It's basically treated just like a second home for tax purposes, but you get the bonus of tax-free rental income. The 14-day rule absolutely still applies even if you use a property management company or Airbnb. The rule is based on the number of days rented, not how you manage the rental. So you can use Airbnb or a management company and still qualify for tax-free income as long as the total rental period is 14 days or less per year.

True story - my parents bought in a golf community in Florida last year and the HOA changed their rental rules 3 months later. Now they can't rent for less than 90 days which ruined their whole investment strategy!

This is super helpful! Question though - my daughter's 1098-T has an amount in Box 5 for scholarships. Do I literally just subtract Box 5 from Box 1 to figure out what expenses I can claim for the education credit?

Yes, that's exactly right. Take the amount in Box 1 (payments received by the school) and subtract the amount in Box 5 (scholarships/grants). The result is your eligible qualified education expenses that you can use for calculating education credits. Just be aware that if Box 5 is larger than Box 1, it means the scholarships/grants exceeded the tuition/fees, and you generally can't claim education credits in that case. Also, don't forget that expenses for books, supplies, and equipment required for courses can be qualified education expenses even if they weren't paid directly to the school (so they wouldn't be included in Box 1).

I used TurboTax last year for this. When it asks who paid, you can select "you" as long as you're claiming the student as a dependent. They don't need the breakdown of where each dollar came from - they just need to know if you (as the taxpayer claiming the dependent) are the one claiming the expenses.

Are these tiebreaker rules still relevant if there's a court order specifying who claims the children? My divorce decree states I get to claim our daughter in even years and my ex in odd years, but I've heard different things about whether the IRS actually follows these orders.

The IRS doesn't automatically enforce divorce decrees or court orders about who claims dependents - they follow tax law first. However, a court order can be enforced if the custodial parent completes Form 8332 (Release of Claim to Exemption for Child by Custodial Parent) transferring the right to claim the dependent to the non-custodial parent. Without that signed form, the IRS will generally allow the custodial parent to claim the child regardless of what the divorce decree says. This often surprises people. If your decree says you get to claim in even years but you're not the custodial parent, your ex would need to complete Form 8332 for those years to make it work for tax purposes.

Did you ever get your refund? I'm going through this exact situation right now and it's been 6 months with no resolution.

Does the exclusion apply if you inherited only a portion of the house? My sister and I each inherited 50% of our parents' home, but only I lived in it.

That's a great question! If you owned 50% of the home and lived in it as your primary residence for the required time period, you can exclude up to $250,000 of your portion of the gain. Your sister, however, wouldn't qualify for the exclusion on her 50% if she didn't live there. So in this scenario, you would get the step-up in basis on your inherited 50%, plus the potential exclusion if you met the residency requirements, while your sister would only get the step-up in basis on her 50%.

This is actually incorrect advice for inherited property. With the step-up in basis, improvements made by the previous owner don't matter. The basis becomes the fair market value at date of death, which already incorporates the value of any improvements.

Does the documentation need to be official court papers? My ex and I have an informal arrangement without anything filed with the court. We just text about scheduling.

No, your documentation doesn't need to be official court papers, although those are helpful if you have them. Text messages about custody exchanges, school records showing your address as the child's residence, medical appointments you took them to, daycare records - all of these can help establish where the child primarily lived. The key is to show a pattern that supports your claim that the child lived with you for more than half the year. Even a personal calendar where you've marked custody days can be useful, especially if it's backed up by other evidence like texts confirming those exchanges happened. Save everything - the more documentation you have, the stronger your case will be if questioned.

How long did the whole process take? I'm worried about my refund being held up for months if something like this happens.