I did charge a small interest rate (like 2%) but I never actually reported it on my taxes since he never made any payments. Should I go back and amend those previous returns to show the interest I SHOULD have received, even though I didn't get it? Would that help my case or just complicate things?

You don't need to amend previous returns to report interest you never received. In fact, doing so might raise red flags. What matters is that you had a legitimate expectation of being repaid with interest, which your loan agreement should show. The IRS follows the concept of "constructive receipt" - you only need to report income when you actually receive it or have unrestricted access to it. Since you never received any interest payments, there was nothing to report. Just focus on documenting that this was a genuine loan with the expectation of repayment, and that the debt has now become worthless.

Yes, that's right. Non-business bad debts are treated as short-term capital losses, which means they're subject to the capital loss limitation ($3,000 per year against ordinary income). However, if OP has any capital gains in the same year, the loss would first offset those gains. Any remaining loss can be carried forward indefinitely to future tax years. So if OP has no capital gains, it would take about 16 years to fully utilize the $47,000 loss. But if they have capital gains in future years, they could use more of the loss carryforward each year to offset those gains without the $3,000 limitation.

Can you request that transcript online or do you have to call again? This whole process gives me so much anxiety.

You can request a record of account transcript online through the IRS website if you have an online account set up. Go to irs.gov, log in to your account, and request the transcript. They usually process it within 5-10 business days. If you don't have an online account, you can also use Form 4506-T to request it by mail, but that takes longer (usually 2-3 weeks). The online method is definitely faster and easier if you're already set up with an online account.

The audit concluded about 6 months ago, and I just got the CP22 yesterday. But even with penalties and interest, it shouldn't double the amount in just 6 months. The notice does break down some penalties and interest but the base amount itself is showing as around $6,800 instead of the $3,800 we agreed on during the audit. So something is definitely wrong with their calculations.

The IRS penalty rate is nowhere near 100% for 6 months. Even with the failure to pay penalty (0.5% per month) and interest (federal short-term rate plus 3%, currently around 7% annually), the most the penalties and interest should add is maybe 10-15% to the original amount over 6 months. Doubling the amount definitely indicates an error.

Thanks for this tip! Did you end up getting any kind of confirmation that they received your reconsideration request? I'm worried about sending it and then it just disappearing into the void.

I did eventually get an acknowledgment letter about 3 weeks after sending my reconsideration request. It basically just said they received it and would respond within 90 days (which turned into 5 months, typical IRS). Make sure you send your request via certified mail with return receipt so you have proof they received it. I also included a cover letter specifically requesting an acknowledgment. If you don't hear anything after about 30 days, start calling to confirm they have your case in the system. This is where having that certified mail receipt becomes crucial - you can reference the delivery confirmation number.

Any chance you could share what kind of documentation worked for establishing "reasonable cause"? I'm in a similar situation but can't afford an attorney right now.

Did you consider filing an amended return after you noticed the issue? I'm wondering if I should do that since I just found this bug on my already-filed 2024 return.

I didn't file an amended return, and I wouldn't recommend doing so in your case either. An amended return should be used for substantial errors that affect your tax liability, not for missing information that doesn't impact the final calculations. Since the sale details are correctly reported elsewhere on Form 4797 and your tax calculation is accurate, filing an amended return would likely just create unnecessary complexity and potentially delay any refund you're expecting. In my case, the IRS processed my return without any issues despite the blank line 1a.

From my experience talking with the IRS (mentioned in my comment above), they're well aware of this TurboTax bug. The agent I spoke with said they see this frequently and it doesn't trigger any compliance issues as long as the property sale is fully reported with the correct amounts elsewhere on Form 4797.

I had no idea about the Saver's Credit! I'll definitely look into that. I do have some student loan interest (about $1,200 last year) but I've been including that on my returns. I don't think I have any other major deductions I'm missing, but maybe I should double check. What's the income limit for the Saver's Credit? I'm worried I might make too much to qualify.

The Saver's Credit has phaseout limits that change annually. For the 2024 tax year (filing in 2025), the credit begins to phase out at $46,000 for single filers and is completely phased out at $71,000. With your income around $68,000, you might qualify for a partial credit, which could result in a small refund. Your student loan interest deduction is good to include - that's up to $2,500 in deductible interest annually. If you work from home at all, you might also want to check if you qualify for any home office deductions, especially if you're an independent contractor for any portion of your income. Every little bit helps!

YES! This happened to me too. H&R Block online gave me a completely different result than Credit Karma Tax (now Cash App Taxes). Turned out H&R Block was correctly applying a credit that Cash App missed. Definitely worth trying a different software.