Does your brother get audited? This seems like exactly the kind of thing that would trigger IRS scrutiny. I'm interested but nervous about drawing attention.

He's been doing this for about 8 years and has been audited once - but not specifically for the vehicles. The audit covered his entire business operations and they did review his vehicle documentation. Since he keeps extremely detailed records (mileage logs, business purpose for trips, maintenance records, etc.), there were no issues with the vehicle deductions. His accountant told him vehicle deductions don't trigger audits on their own - it's usually when they're combined with other unusual deductions or when the business use percentage seems unrealistic compared to your type of business. The key is legitimacy and documentation - this isn't a strategy for getting personal vehicles, it's for actual business vehicles that happen to be nice.

Is that really worth the extra complexity though? Seems like you'd spend a lot on accounting and legal fees just to maintain two entities.

This is a really good point. I once made a single extra principal payment of $10k and was shocked at how much it reduced my yearly interest. Also, if your mortgage has an escrow account for taxes and insurance, changes to those amounts wouldn't affect the interest portion but could make your total payment seem consistent even while the interest/principal ratio was changing.

We actually did make a couple of extra payments last year - put our tax refund toward the mortgage and then got a small bonus in October that we threw at it too. Never connected that this would significantly change the interest calculation. Between the loan sales and the extra payments, I'm starting to think this drop might be legitimate after all. Going to double-check all our statements though just to be safe.

This happened to me too! The new servicer somehow "lost" my payment allocation instructions and reverted to their default distribution. I only caught it because I was tracking everything in a spreadsheet. Definitely go through each statement carefully.

Is there an easy way to verify this? I have all my statements but honestly have no idea what I'm looking for in terms of payment allocation. What specific numbers should I be comparing month to month?

Do you know how I can specifically request this first-time penalty abatement? Would I need to call the IRS directly or is there a form? We've never had issues before these last two years so maybe we qualify.

You can request first-time abatement by calling the IRS directly - there's no specific form for it. When you call, specifically ask for "first-time penalty abatement" under the IRS First Time Abatement policy. Be prepared to verify that you haven't had penalties in the prior 3 tax years. Alternatively, you can write a penalty abatement letter after you receive a bill with penalties. Include your name, address, SSN, and a statement requesting first-time abatement. Make it clear you've had a clean compliance history and are taking steps to avoid future issues (like updating your W4s, which you've already done).

This could be dangerous advice depending on the person's credit situation. IRS interest rates (currently around 7-8%) are often lower than credit card rates after promotional periods (often 18-25%). If they can't pay off the card in time, they'd be in worse shape.

That's a really good point I hadn't considered! He is a full-time college student, so I think I'm still eligible to claim him. He works part-time at the campus bookstore, but I'm definitely providing well over half his support (tuition, housing, food, car insurance, phone, etc.). Do you know if there's any form or documentation I should get from his college to prove he's enrolled full-time? I want to make sure I have everything in order before this becomes an issue with the IRS.

You'll want to get a transcript or enrollment verification from his college showing his full-time status for the tax year. Most schools can provide this through their registrar's office or student portal. This is important documentation to have on hand. For the support test, keep records of all those expenses you mentioned. Create a spreadsheet showing what you pay versus what he earns from his job to clearly demonstrate you provide more than half his support. Also, make sure you understand the difference between the Qualifying Child and Qualifying Relative tests for dependents - at 19, he's only a Qualifying Child if he's a full-time student, otherwise you'd need to see if he meets the tests for a Qualifying Relative.

This is what I was thinking too. At 19, why isn't the son just providing his own SSN to his parent? Something seems off about this whole situation. Maybe there's more to the story?

Do you know if he would get the 1099-S directly or would it only go to his ex since she's the one who actually handled the sale and got the proceeds?

If his name was on the deed at the time of sale, the closing company should have sent the 1099-S to both parties. They're required to report to everyone listed on the property records. Each person would receive a 1099-S showing the full sale amount (not divided). This is exactly why your brother needs to properly document on his Schedule D that he previously sold his interest and received compensation. Otherwise, the IRS computers will think he received half the proceeds from the 2024 sale.

Yes, this is an important consideration! If he met the ownership and use tests (owned and lived in the home as his main residence for at least 2 out of the 5 years before the interest was disposed of), he could potentially exclude up to $250,000 of gain. In this case, it sounds like he might have taken a loss rather than a gain, but the timeline matters. The 5-year lookback period would start from when he effectively "sold" his interest (the buyout), not the final sale date of the house. So if he lived there for at least 2 years before accepting the buyout payment, he would qualify for the exclusion if there had been a gain.