Great point about state taxes. Do K-1 losses always work the same way for state taxes as they do for federal? I'm in Virginia and sometimes our state rules are different than federal.

State tax treatment generally follows federal rules, but there can definitely be differences. Virginia typically conforms to federal tax law for pass-through entities like partnerships, so your K-1 loss should flow through to your state return similarly. However, some states have their own limitations or adjustments for passive losses. The best approach is to check your specific state's tax department website or consult with a tax professional familiar with your state. Even with potential variations, in most cases you'll still see some benefit at the state level from reporting your K-1 loss.

How much was the penalty? I'm wondering because I might have done the same thing last year... thought my K-1 loss was so small it wouldn't matter 😬

1 That's good to know! If my cost basis is missing, can I just use the price I remember paying or do I need actual documentation?

5 You really need documentation to support your cost basis if it's missing from your 1099-B. The IRS can question unsupported numbers during an audit. If you absolutely can't find records, you should make a good faith effort to reconstruct the cost basis using historical price data from when you purchased the securities. Some brokerages have historical price lookup tools, or you can use financial websites that show historical prices. Just make sure to keep notes on how you determined each cost basis amount in case you need to explain your methodology later. Documenting your research process shows you made a reasonable effort to comply with tax requirements.

12 Really? That seems excessive. What about losses? Can those offset other income or do they only offset capital gains?

These volunteer programs are hit or miss for investment questions though. I tried VITA last year and the volunteer wasn't comfortable answering my stock trading questions. Said they mostly handle basic returns without investment income.

That's reassuring to hear! Did you keep detailed mileage logs or just estimates? I have a general record of client visits but didn't track the exact odometer readings for every trip.

I keep a simple spreadsheet with the date, starting odometer, ending odometer, and purpose of trip. Nothing fancy. I also save my gas receipts and maintenance records as backup evidence of how much I'm actually driving. Even if your records aren't perfect, having something is better than nothing. The IRS knows most people aren't keeping NASA-level precise records. If you can show you made a good faith effort to track your business miles and that the total claimed is reasonable for your line of work, you should be fine.

This makes a lot of sense. I've always heard that claiming more than 80% business use is a red flag, but I guess it really depends on what you do for work. A traveling salesperson or consultant might legitimately use their car almost exclusively for business.

The property is in Arizona. I hadn't even thought about state-specific taxes, though. Do they handle the basis calculation differently there?

Arizona doesn't have a state inheritance tax or estate tax, so you're in luck there! You'll only need to worry about federal taxes on any gain above your stepped-up basis. Arizona follows the federal rules for stepped-up basis, so whatever fair market value you establish for federal tax purposes will also work for your Arizona state tax return. Just make sure you keep thorough documentation of how you determined the property's value at the time of inheritance.

That's terrible advice and could get OP audited. The IRS specifically looks for people claiming no gain on inherited property sales. The stepped-up basis has to be established at date of death, not date of sale. If there was significant appreciation between those dates (like a developer suddenly becoming interested), claiming no gain would raise red flags.