Yes, you would still expense it in 2024. The tax year for the deduction is based on when you put the item into service for your business, not when the money was spent. If you never used the original item and returned/exchanged it, then the deduction happens in 2024 when you got and started using the correct item.

Thanks for clarifying! That makes sense. I was confused because I technically spent the money in 2023, but I see now that what matters is when I actually started using the item in my business operations.

That's not correct for a straight exchange. If you got a full refund and then made a separate purchase, maybe, but for an exchange of products it's treated as a single corrected transaction. The IRS doesn't expect you to report a refund as income in most cases - especially when it's just correcting a purchase.

Question about the real estate professional requirements - I've heard you need 750 hours annually in real estate activities to qualify. If my spouse does property management full-time while I keep my W2 job, does that work for us filing jointly? Or do I personally need to qualify?

Your spouse can absolutely qualify as the real estate professional while you maintain your W2 job. This is actually the most common arrangement I see with my high-income clients. As long as your spouse spends 750+ hours annually in real estate activities (and more time on real estate than any other employment), their status allows the rental losses to offset your joint income on a married filing jointly return. Just be aware that your spouse needs to be actively involved in day-to-day operations, not just nominally listed as the manager. The IRS looks closely at these arrangements, so documentation of your spouse's time and activities is crucial. Keep calendars, logs, emails, and all evidence of their involvement.

I wouldn't recommend TurboTax for this. My brother tried doing this himself with TurboTax and missed several key forms and elections that would have maximized his deductions. He ended up hiring a real estate tax specialist who amended his return and found an additional $23k in tax savings he'd missed.

1 Thanks for mentioning this! I just checked and her unemployment benefits were about $3100, so it looks like we'll need to use Form 8615 after all. When I use her total income ($2600 earned + $3100 unearned) to figure out her tax bracket, do I use that combined amount? Or does the kiddie tax calculation separate them?

7 The kiddie tax calculation does separate earned income from unearned income. Her $2600 from the mall job is taxed normally at her own tax rates. For the unemployment benefits of $3100, the first $1,150 is tax-free, the next $1,150 is taxed at her rate, and only the remaining $800 would be taxed at your parents' rate. Form 8615 walks you through this calculation step by step. You'll need your parents' tax info though, specifically their taxable income and tax amount from their return, to complete the form. This is why it gets complicated - you're essentially calculating part of her tax using their information.

8 The regular unemployment benefits count as unearned income and would be reported on Form 8615. However, the stimulus payments (economic impact payments) were technically advance tax credits and are NOT considered income at all - neither earned nor unearned. Those don't get reported as income on the tax return.

Does this Social Security benefit apply even if both spouses work their whole careers? I thought that only mattered if one spouse didn't work much or at all.

Yes, it can still matter even if both work their full careers. Each person gets their own benefit based on their earnings, but they're also entitled to 50% of their spouse's benefit if that amount is higher than their own. So if one person consistently earned more, the lower-earning spouse could potentially get a higher benefit through the spousal benefit. It also matters tremendously for survivor benefits. If one spouse passes away, the surviving spouse can switch to the deceased spouse's full benefit amount if it's higher than their own. Unmarried partners don't have access to this option regardless of how long they've been together.

This is really helpful. Question though: for education credits, do both parents' incomes count anyway if they both claim the child as a dependent in alternating years (even if unmarried)? Or does it only look at the income of whoever claims the child that year?

Thanks for this suggestion! Did you have to provide any special documentation when you submitted Form 911? And did you end up getting your refund in a reasonable timeframe after the advocates got involved?

You need to provide a copy of the 5071C letter and explain your unsuccessful attempts to resolve through normal channels (keep notes of dates/times you tried calling). I also included copies of my photo ID and Social Security card, which sped things up. I did eventually get my refund, but it wasn't quick - took about 10 weeks after the Taxpayer Advocate got involved. Still better than not getting it at all! They told me identity theft cases require extra processing time even after verification. The important thing is they stopped the fraudulent return and protected my tax account from further issues. They also added extra security to my account for future years.

I second this approach! I had a CP01A identity verification issue (similar to 5071C) and my Senator's office was incredibly helpful. They have dedicated staff who deal with IRS issues all the time. Just go to your representative's website and look for "constituent services" or "casework" - most have an online form specifically for federal agency issues.