I recommend you make a copy of the check when you pay that $58k and keep proof of payment forever. The IRS systems don't always talk to each other, and I've seen cases where one department doesn't know what the other is doing. The lock-in letter may have been processed before they knew you were about to pay.

Just went through this exact situation last month. The lock-in letter and your $58k tax bill are definitely connected - the IRS issued the lock-in because they see a pattern of underpayment and want to prevent it from continuing while you're resolving the existing debt. Here's what you need to know: paying off that $58k won't automatically remove the lock-in letter. These typically stay in effect for at least 12 months regardless of whether you've paid your back taxes. However, once you've paid the debt and can demonstrate compliance, you can appeal the lock-in or request a review. My advice - pay that $58k as planned (keep all documentation!), then immediately call the IRS number on the lock-in letter to discuss your situation. Explain that you've now paid the full debt and want to work with them on the withholding issue. Sometimes they're more willing to work with you once they see you've taken care of the outstanding balance. Also, double-check that your wife's employer received and processed the lock-in letter correctly. Some employers mess up the implementation, which can cause additional headaches down the road.

Don't forget to check if your state has different rules than federal for this kind of conversion! I got burned badly on this in California when I did something similar. The feds gave me a partial exclusion but CA had different rules that made more of the gain taxable at the state level.

Based on everyone's discussion here, it sounds like you need to carefully calculate whether moving back in for 2 years is actually worth it financially. With $270k in appreciation and roughly 5-6 years of rental use out of what would be 10+ years total ownership, you're looking at only a partial exclusion. Here's what I'd suggest considering: 1. Calculate your exact qualified vs non-qualified use periods 2. Factor in ALL the depreciation recapture you'll owe (this hits regardless of the exclusion) 3. Consider market timing - real estate cycles can easily wipe out tax savings 4. Don't forget state tax implications if you're in a high-tax state The math might show that selling now as a rental and paying the full capital gains could actually be better than waiting 2 years, especially if you factor in opportunity cost of the proceeds and potential market changes. A lot depends on your specific numbers and local market conditions. Have you run the actual calculations with your purchase price, claimed depreciation, and current market value? That's really the only way to know if the 2-year wait is worth it.

Has anyone mentioned the tax benefits of leasing vs buying for a corporation? We lease our company vehicles and it simplifies the deduction process significantly. No depreciation calculations, just deduct the lease payments (with some adjustments for luxury vehicles).

Just want to emphasize something important that hasn't been fully addressed - the IRS scrutinizes vehicle deductions very closely, especially for expensive cars like a Porsche. Your dad needs rock-solid documentation if he goes this route. If the corporation buys the vehicle, he'll need to maintain a detailed mileage log showing business vs. personal use for every trip. This means recording the odometer reading, date, destination, and business purpose for each use. The IRS can and will audit vehicle deductions, and without proper documentation, they'll disallow the entire deduction plus penalties. Also, if he's using the car for both his W2 job commute AND legitimate corporation business, he needs to be very clear about which trips qualify for deduction. The corporation can only deduct mileage/expenses for actual business purposes - client visits, business meetings, etc. Regular commuting to his W2 job is never deductible. Given the complexity and audit risk, especially with a high-value vehicle, I'd strongly recommend getting a tax professional involved before making any purchase decisions. The potential tax savings need to be weighed against the compliance burden and audit risk.

As a newcomer to this community, I'm finding this discussion absolutely fascinating! I just started my first job that offers an HSA and honestly had no idea there was so much complexity behind what seemed like straightforward healthcare spending rules. The historical breakdown about the ACA removing OTC eligibility and the CARES Act restoring it (but only for HSAs/FSAs) really helps explain what initially seemed like a confusing inconsistency. I was also wondering why Advil could be HSA-eligible but not Schedule A deductible - now it makes perfect sense that these evolved from different legislative priorities at different times. I'm definitely going to adopt that three-column spreadsheet approach several people mentioned. Having "Expense," "HSA Eligible," and "Schedule A Eligible" columns seems like it would eliminate so much of the mental gymnastics of trying to track different rules for the same purchases. Quick question for the group: For someone just starting out with a small HSA balance, would you recommend the "pay out of pocket and save receipts" strategy right from the beginning? I understand the long-term investment growth benefits, but I'm wondering if there's a minimum account balance where that strategy starts to make more sense than just using HSA funds directly for current expenses. Thanks everyone for sharing such practical insights - this thread has been like a masterclass in HSA optimization!

As someone completely new to HSAs, this entire thread has been incredibly eye-opening! I just enrolled in my employer's HSA plan for 2025 and honestly had no clue about any of these nuances between HSA eligibility and Schedule A deductions. The historical context about the ACA removing OTC medication eligibility and the CARES Act restoring it (but only for HSAs/FSAs) finally makes sense of what seemed like arbitrary inconsistencies. I was also puzzled why I could use HSA funds for ibuprofen but couldn't deduct the same expense on Schedule A if I paid cash. I love the three-column spreadsheet idea that keeps coming up - "Expense," "HSA Eligible," "Schedule A Eligible." That seems like it would eliminate all the confusion about tracking the same purchases under different tax rules. One thing I'm curious about: for someone starting with a zero HSA balance, would you recommend beginning contributions specifically earmarked for OTC medications, or should I focus on building up funds for potential larger medical expenses first? I want to make sure I'm prioritizing my limited contribution capacity wisely. Also, are there any other common medical expenses besides OTC medications where HSA and Schedule A treatment differs significantly? I want to avoid other surprises as I start navigating this system. Thanks to everyone who's shared their expertise - this discussion has been incredibly valuable for HSA newcomers like myself!

Another option to consider: many credit unions and community organizations offer free or low-cost tax preparation services through IRS-certified volunteers. I used my local credit union last year for a return with W2 and some 1099 income, and they did a great job. Might be worth checking if there's something like this in your area?

For what it's worth, I paid $650 for tax prep last year with a similar situation (self-employment, W2, and investment income). That was with a local CPA, not a chain. The way I look at it - yes it's expensive, but the peace of mind knowing it's done right and I'm not leaving money on the table is worth it to me.