This thread has been incredibly helpful! I'm actually a tax preparer and see a lot of confusion around 1031 basis calculations with my clients. One thing I'd add that hasn't been mentioned yet is the importance of understanding how state depreciation recapture rules can complicate things, especially when exchanging between different states. For example, some states don't conform to federal depreciation methods, so you might have different basis adjustments at the state level. This becomes particularly tricky when your relinquished and replacement properties are in different states - you'll need to track both federal and state basis separately. Also, @Anastasia Popov, since your uncle's San Diego property was held for 12 years, make sure to account for any bonus depreciation or Section 179 deductions that might have been claimed in addition to regular MACRS depreciation. These can significantly impact the adjusted basis calculation and are often overlooked. One last tip - if the numbers get too complex, Form 8824 (Like-Kind Exchanges) has a built-in worksheet that walks you through the basis calculation step by step. It's actually quite helpful for ensuring you don't miss any adjustments.

As someone who just went through a 1031 exchange myself last year, I can definitely relate to the confusion around basis calculations! One thing that really helped me was creating a simple spreadsheet to track all the components: Column 1: Original purchase price of relinquished property Column 2: Capital improvements (with dates and receipts) Column 3: Total depreciation claimed (year by year) Column 4: Adjusted basis of relinquished property (Col 1 + Col 2 - Col 3) Column 5: Sale price of relinquished property Column 6: Purchase price of replacement property Column 7: Additional cash invested (Col 6 - Col 5, if positive) Column 8: Boot received (Col 5 - Col 6, if positive) Your uncle's new basis would essentially be his adjusted basis from the San Diego property ($420K + $65K improvements - 12 years of depreciation) plus the additional $325K he invested in the Phoenix property. The key thing I learned is that you're basically "carrying forward" the tax consequences from the old property to the new one. The IRS gets their depreciation recapture and capital gains eventually - the 1031 exchange just delays it until you sell the replacement property in a taxable transaction. Make sure to keep all this documentation organized because you'll need it when your uncle eventually disposes of the Phoenix property!

This thread has been incredibly helpful! I'm a CPA who frequently sees this exact issue during partnership-to-S-corp transitions, and unfortunately it's become quite common due to misconceptions about when entity election timing takes effect. The key point everyone should understand: your entity classification for tax purposes is based on your actual legal status during the tax year, not your future plans or "preparation" for a conversion. You cannot treat partners as W-2 employees while still operating as a partnership, period. For those dealing with this situation, here's what I typically recommend to clients: 1. **File amended returns** - Don't wait and hope it doesn't become an issue. Proactive correction shows good faith compliance. 2. **Address ALL the cascading effects** - This isn't just about reclassifying income. You may need to correct payroll tax deposits, retirement contributions, workers' comp coverage, and state tax filings. 3. **Get specialized help** - Entity transition corrections require coordinating multiple moving parts simultaneously. A general business accountant might not catch all the interconnected issues. 4. **Document everything** - Keep records showing you acted on professional advice, even if that advice was incorrect. The good news is that since most of you seem to have paid the correct total tax amounts, this is primarily a classification correction rather than an underpayment situation. The IRS is generally reasonable about honest mistakes during legitimate business transitions, especially when you're proactively fixing them. Don't let this stress you out too much - it's fixable, just more complex than initially appears!

This is a really comprehensive discussion that highlights how common this issue is across professional practices! I'm a small business owner (not healthcare, but service-based) and went through an LLC-to-S-corp conversion last year. Fortunately, our accountant caught this timing issue before we made the same mistake. What strikes me from reading everyone's experiences is how many reputable accounting firms seem to be making this same error by treating entity conversions as if they take effect earlier than they legally do. It makes me wonder if there should be more continuing education for CPAs about the specific timing requirements for entity elections. For anyone still working through corrections, I'd echo the advice about finding a specialist. When we were researching our conversion, I specifically looked for tax professionals who had experience with entity transitions and asked detailed questions about timing and compliance during our initial consultation. The right specialist will know to address all these interconnected issues (payroll taxes, retirement contributions, etc.) as a coordinated correction rather than handling them piecemeal. One additional thought - if you're dealing with state-level complications on top of the federal issues, make sure your specialist understands your state's specific rules about entity elections. Some states have different timing requirements or don't automatically recognize federal S-corp elections, which could create additional layers of complexity to unwind. Hang in there everyone - these transition periods are tricky, but the fact that you're all addressing the issues proactively puts you in a much better position than ignoring them and hoping for the best!

Just want to add that capital losses from collectibles can offset capital gains from collectibles. So if you sold some items at a loss and others at a gain, you might end up owing less tax. The hard part is proving what you originally paid if you don't have receipts.

I've been dealing with this exact situation and wanted to share what I learned from my research and talking to a tax professional. The key thing to understand is that there's a difference between selling personal items at a loss (which most garage sale items are) versus selling collectibles that have appreciated in value. For your garage sale items, if you're selling personal belongings for less than what you paid, there's generally no tax consequence. The IRS considers these personal losses, which aren't deductible but also aren't taxable income. For collectibles that have increased in value, you do need to report the gains. The tricky part about not having receipts is real, but the IRS allows "reasonable estimates" of your cost basis. You can research what similar items sold for when you originally bought them using price guides, auction records, or inflation calculators. One thing that surprised me: collectibles are taxed differently than stocks - they're subject to a maximum 28% rate rather than the lower long-term capital gains rates. So it's worth tracking these separately. As for whether the IRS will "come after you" for small amounts - while technically all income should be reported, enforcement resources are typically focused on larger discrepancies. That said, with new 1099-K reporting requirements lowering to $600 in 2025, there will be more paper trails for online sales.

Has anyone ever had the payroll department make a mistake with the W-4? When I started my current job I filed as married with 2 allowances but they somehow put me as exempt for the first 3 paychecks without me requesting it. It was a headache to fix.

This is a great reminder for everyone! I learned this the hard way when I first started working. What really helped me understand my paystub was looking at each deduction line by line and researching what each acronym meant. For example, "OASDI" is Old-Age, Survivors, and Disability Insurance (Social Security tax), and "Medicare" is obvious but some people don't realize it's separate from Social Security. Also, if you're planning to claim exempt, make sure you actually qualify! The IRS is pretty strict about this - you need to have owed zero federal income tax last year AND expect to owe zero this year. If you're unsure, it's better to have a small amount withheld than to face penalties and interest later. You can always adjust your withholding throughout the year if needed.

I've been following this thread as someone who's dealt with F-1 visa tax complications before, and wanted to add one important point that hasn't been mentioned yet. Since you completed your 5-year stay back in 2019 but only started working in June 2023, there's a significant gap there. Make sure your employer understands that your FICA exemption ended in 2019, not when you started this current job. Some payroll departments get confused about this timing and think the exemption is tied to when you start working rather than your total time in the US. This could actually work in your favor - it shows you've been subject to FICA taxes for several years now, so there shouldn't be any question about your status. Just make sure they're calculating from your actual start date in June, not trying to go back further. Also, regarding your concern about "doing this incorrectly" - the fact that you're addressing this proactively after being contacted by your employer shows you're handling it exactly right. The IRS appreciates when taxpayers work to correct errors rather than ignore them.

This has been an incredibly helpful thread! As someone who went through a similar FICA withholding issue with my F-1 to H-1B transition, I wanted to add one more resource that might be useful. If you run into any delays or pushback from your employer about issuing the corrected W-2, you can actually contact the IRS directly to report the issue. There's a specific process for when employers fail to provide corrected tax documents in a timely manner. The IRS can sometimes intervene to get the correction expedited. Also, just to reinforce what others have said about penalties - I was really worried about this too when I discovered my employer had been withholding incorrectly for almost a full year. The IRS agent I spoke with made it very clear that as long as you pay what you owe once the error is discovered, there are no penalties for the employee in these employer withholding error situations. One last tip: when you file your amended return, consider sending it via certified mail. Since it's correcting a FICA withholding issue rather than claiming additional refunds, it's not likely to trigger problems, but having proof of delivery gives you peace of mind and documentation for your records. You're handling this exactly the right way by being proactive about it!