One thing that hasn't been mentioned yet is timing considerations for 529 distributions. If your parents-in-law took the distribution in 2024 but your daughter's scholarship was awarded for the 2024-2025 academic year, make sure you have documentation showing the scholarship applies to the tax year in question. Also, since they transferred the money to their own account first before gifting it to your daughter, this creates a clear paper trail that they (not your daughter) are responsible for the tax consequences. The 1099-Q should be issued in their names as the account owners who received the distribution. For future reference, if there are leftover 529 funds after a scholarship, consider changing the beneficiary to another family member (sibling, cousin, etc.) who might need education funding. This avoids the non-qualified distribution issue entirely while keeping the tax-advantaged growth intact for education purposes.

Just a heads up for anyone dealing with 529 distributions - make sure you understand the difference between who owns the account versus who the beneficiary is when it comes to tax reporting. In your situation, since your parents-in-law owned the account and received the distribution into their own bank account, they're the ones responsible for reporting the taxable earnings and paying any penalties on their tax return. The fact that they then gifted the money to your daughter is a separate transaction entirely. As long as the gift was under the annual exclusion limit ($17,000 for 2023, $18,000 for 2024), there shouldn't be any gift tax consequences either. One more thing - if your daughter received any scholarship money that was tax-free, make sure your in-laws claim the scholarship exception on Form 5329 to avoid the 10% penalty on up to that scholarship amount. They'll still owe income tax on the earnings portion, but avoiding the penalty can save a significant amount. Keep all scholarship documentation handy in case the IRS has questions later.

Thanks for bringing up this complex interaction between Form 8978 and AMT calculations. I've seen this exact scenario several times this year and it's definitely confusing at first glance. What you're experiencing is correct - the software is properly applying the tax law. The Form 8978 adjustment creates a credit that reduces your regular tax liability, but AMT is calculated independently using its own set of rules on Form 6251. When the regular tax (after the 8978 credit) falls below the AMT liability, the AMT kicks in as intended. One thing to double-check: make sure your client doesn't have any AMT credits from prior years that could offset this current AMT liability. Also, if this is a significant ongoing issue for your client, you might want to explore estimated payment strategies for next year to avoid underpayment penalties, since the AMT calculation might not be captured in their usual payment routine. The interaction between partnership audit adjustments and AMT has been a real headache since the centralized partnership audit regime was implemented. At least now the IRS instructions are starting to acknowledge these scenarios more clearly.

This is a great discussion on a really tricky area of tax law. I've been dealing with these Form 8978/AMT interactions more frequently lately and wanted to add a few practical tips that have helped me: First, when explaining this to clients, I find it helpful to frame it as the AMT serving as a "safety net" that prevents their total tax from going too low, even with legitimate credits. The Form 8978 credit still provides value - it's just capped by the AMT floor. Second, for planning purposes, I've started including a note in my client files when they receive partnership K-1s to flag potential future AMT issues if there are audit adjustments. This helps set expectations early. One thing I haven't seen mentioned yet is the timing aspect - if your client is facing a large AMT liability due to the 8978 adjustment, make sure to review their estimated payment requirements for the current year. The AMT can create unexpected underpayment scenarios since most clients don't factor it into their quarterly estimates. Also, if anyone is dealing with multi-year adjustments (where the 8978 affects multiple tax years), the AMT interactions can get even more complex. In those cases, I've found it's worth running scenarios for each affected year to see if there are any planning opportunities around the timing of when to file the adjusted returns.

Has anyone actually looked at OP's investment options with Paylocity? Are they mainly target date funds or do they have some decent index fund options? The fees make a huge difference over time.

Great decision Tyler! You've got a solid plan there. Just wanted to add a few practical tips for when you start doing those transfers: 1. Keep track of your transfer dates - most HSA providers limit you to 1-2 free transfers per year, so you'll want to batch them up rather than doing frequent small transfers. 2. Consider doing your first transfer once you hit around $2,000-3,000 in your Paylocity account. This way you're past their minimum balance requirement and have a decent amount to make the transfer worthwhile. 3. When you do transfer, leave a small buffer in your Paylocity account (maybe $100-200) to cover any potential fees or timing issues with future payroll contributions. 4. Make sure to update your investment allocations in both accounts so new money gets invested automatically rather than sitting in cash. The fee difference you mentioned (0.35% vs Fidelity's zero-fee funds) will really add up over time. On a $10,000 balance, that's $35/year you're saving, and as your HSA grows to $50,000+ over the years, you'll be saving hundreds annually. Smart move!

As someone who works in tax preparation, I want to add one more practical consideration that hasn't been mentioned yet - timing of contributions throughout the year when you have coverage changes like this. Since your spouse is switching coverage mid-year, make sure to coordinate the timing of your HSA contributions with your payroll department. Some employers automatically adjust HSA contribution limits based on the coverage elections in their system, and if their system shows "individual + 1 dependent" it might default to individual limits rather than recognizing it qualifies for family limits. I'd recommend explicitly confirming with payroll that your HSA contributions are set to the family limit ($11,100 for 2025) and providing them with the IRS Publication 969 reference if needed. You can always make additional contributions directly to your HSA provider if your employer's payroll system limits you incorrectly. Also, keep in mind that you have until April 15, 2026 to make HSA contributions for the 2025 tax year, so you're not locked into whatever payroll deduction amount you set initially. This gives you flexibility to true-up your contributions once you have clarity on your exact coverage situation throughout the year. The guidance in this thread has been spot-on - you definitely qualify for the family contribution limits based on your situation!

This thread has been absolutely invaluable! As someone completely new to HSA rules, I was initially overwhelmed by the complexity of mixed family coverage scenarios, but this discussion has made everything crystal clear. The consistent guidance from multiple community members - all pointing to IRS Publication 969 and confirming that you + any dependent on your HDHP qualifies for family contribution limits regardless of spouse's separate coverage - gives me complete confidence in the $11,100 limit for 2025. What really impresses me is how this evolved into such a comprehensive resource. Beyond just answering the basic question, we now have detailed coverage of catch-up contributions, the last month rule, employer matching considerations, documentation best practices, payroll coordination tips, and multiple pathways for getting official IRS guidance when HR departments provide conflicting advice. As a newcomer dealing with my own complex family insurance situation, I'm bookmarking this entire thread as my HSA reference guide. The combination of specific IRS publication citations, real-world experiences, and professional insights from tax preparers and benefits administrators makes this more valuable than any benefits seminar I've attended. Thanks to everyone who shared their expertise - this is exactly the kind of collaborative knowledge-sharing that makes online communities so powerful for navigating complex financial decisions!

This has been an absolutely incredible thread to read through! As someone who's currently helping my elderly mother prepare for a similar transition, I can't express how valuable all of this shared experience and advice has been. What strikes me most is how this situation - helping aging parents or grandparents sell their belongings - is becoming increasingly common as our population ages, yet there's so little clear guidance available about the tax implications. The fact that so many people in this thread have faced nearly identical situations really highlights how much we need these kinds of community discussions. I'm taking notes on all the key resources mentioned - taxr.ai for auction sales guidance, Claimyr for actually getting through to the IRS, the importance of establishing written authorization to act as an agent, and the detailed documentation strategies. The spreadsheet approach with photos of maker's marks is particularly brilliant. One thing I'd add for anyone reading this thread in the future: don't let the complexity paralyze you into inaction. Yes, there are tax implications to consider, but with proper documentation and the resources shared here, it's absolutely manageable. The stress of trying to figure it all out on your own is much worse than the actual process once you have the right guidance. Diego, your question has sparked what might be one of the most comprehensive discussions I've seen on this topic. Thank you for creating such a valuable resource for families dealing with these challenging but inevitable life transitions!

As someone who just went through a very similar process with my father's estate, I wanted to add a few practical tips that might help streamline things for you and your grandmother. First, if you're planning to continue selling items over several months, consider setting up a simple tracking system from day one. I used a basic Google Sheet with tabs for "Sold Items," "Pending Sales," and "Tax Documentation." This made it much easier when it came time to organize everything for tax purposes. Second, don't overlook the importance of timing your sales strategically. If your grandmother's total income for the year might push her into a higher tax bracket or affect her benefits eligibility, you might want to spread larger sales across multiple tax years. This is especially relevant for high-value items like that antique clock. Third, I'd recommend taking photos of items in their original location before you move them for sale. This can help establish that they were personal/household items rather than business inventory, which supports the "casual sale" classification everyone has discussed. The documentation advice throughout this thread is excellent - I wish I had found a resource like this when I was starting out. You're asking all the right questions, and it sounds like you're approaching this with exactly the right level of care and attention to detail.