Does anyone know how the mortgage interest deduction works in this situation? If I own 3 properties (my primary home, a vacation home, and my mom's rental that's below market), can I still deduct the mortgage interest on all of them? Tryin to figure out if I'm hitting some kinda limit.

One thing I haven't seen mentioned yet is the importance of keeping detailed records of all your expenses related to the property. Since you're renting at below market rate, the IRS may scrutinize your deductions more closely if you're ever audited. Make sure to track everything - property taxes, mortgage payments, insurance, maintenance, repairs, even mileage when you drive over to check on the property. If the IRS does limit your deductions proportionally (like others mentioned with the 75-80% rule), you'll want solid documentation to support every expense you're claiming. Also, consider getting a formal appraisal or at least documenting comparable rentals in your area when you set the rent. This creates a paper trail showing you made a good faith effort to determine fair market value, which helps justify your rental amount if questioned later. I learned this the hard way when my accountant couldn't find enough documentation to support my below-market family rental and I had to scramble to recreate everything during tax season.

Kevin, regarding the Section 481(a) adjustment that Carmella mentioned - this is actually crucial for your conversion and often overlooked. The adjustment captures items that would be duplicated or omitted due to the accounting method change. Common timing differences include: 1) Accounts receivable at conversion date (income recorded under accrual but not yet received) 2) Accounts payable (expenses recorded under accrual but not yet paid) 3) Prepaid expenses that were deducted under accrual but payment spans multiple years 4) Accrued expenses like utilities or professional services For a consulting S-Corp, you'll likely have a positive adjustment (meaning you'll spread additional income over 4 years) due to outstanding receivables. The calculation involves comparing your books at year-end under both methods. As for California, they generally conform to federal accounting method rules but require their own Form 3115 equivalent (FTB 3115) to be filed. California also has a stricter interpretation of the business purpose test for educational expenses. For the MBA determination letter, that process typically takes 6+ months, so you won't get clarity before year-end. However, you could file a protective election and document your business purpose thoroughly. If questioned later, you'd have contemporaneous evidence of your reasoning. I'd strongly recommend getting a CPA involved for the Section 481(a) calculation - the math can get complex and mistakes are costly.

I went through this exact conversion for my single-member S-Corp consulting business last year and wanted to share some lessons learned that might help you avoid the pitfalls I encountered. First, regarding your owner investment transactions - you're on the right track, but be careful about the computer hardware classification. Under cash basis, if the computer cost more than $2,500, you might need to capitalize it rather than expense it immediately, even though you paid cash. The IRS has specific rules about tangible property that apply regardless of your accounting method. For payroll, I found that Wave actually handles cash basis payroll pretty well once you adjust the settings. You're correct that you'd record everything when cash flows out, but make sure you're still tracking your employer tax liabilities properly since those have specific payment deadlines that don't always align with payroll dates. The MBA tuition situation is where I'd be most cautious. I tried a similar prepayment strategy and ended up having to amend my return after my CPA pointed out that the IRS often views large educational prepayments by single-member S-Corps as constructive dividends, especially when the education could qualify the owner for work outside their current business scope. The safe harbor rules are stricter than many people realize. One thing nobody mentioned yet - consider the impact on your Qualified Business Income (QBI) deduction under Section 199A. Converting to cash basis and making large prepayments can significantly affect your QBI calculation, potentially reducing the 20% deduction benefit. Have you considered spreading the conversion over two tax years to minimize the Section 481(a) adjustment impact?

One thing nobody's mentioned yet - market timing. If you think we're headed for a correction soon, selling some winners now might make sense regardless of the tax implications. I sold half my tech stock gains in early 2022 and was glad I did when everything crashed later that year.

Just wanted to add another perspective on your situation. With $10k in realized losses and $40k in unrealized gains split between short-term and long-term, you have some good flexibility here. One strategy to consider is "laddering" your gain realization over multiple tax years if you don't need the cash immediately. Instead of realizing all $10k in gains this year to offset your losses, you could realize maybe $7k this year (prioritizing short-term gains as others mentioned) and carry forward the remaining $3k in losses to offset future gains or deduct against ordinary income next year. This approach can be particularly beneficial if you expect to be in a higher tax bracket next year or if you anticipate having more capital gains in the future. The $3k annual deduction against ordinary income can provide nice tax savings year after year if you don't have enough gains to offset it. Also worth noting - if you do decide to sell and immediately repurchase (which is fine for gains), just make sure you're not creating any unintended wash sale issues with related securities or funds that might track the same underlying assets.

Just wanted to add something important that hasn't been mentioned yet - make sure your mom considers the timing of the purchase carefully. The truck needs to be "placed in service" (actually used for business) by December 31st, 2025 to qualify for the 2025 tax year deductions. Also, since she's financing most of the purchase, she can still claim depreciation on the full purchase price, not just the amount she's paying out of pocket. The $10,500 trade-in value gets subtracted from the purchase price for depreciation purposes, so she'd be depreciating $32,500 ($43,000 - $10,500) if used 100% for business. One more thing - if her landscaping business has been profitable and she expects it to continue being profitable, the immediate deduction from bonus depreciation could be really valuable for reducing her current tax liability. But if she's expecting much higher income in future years, she might want to consider spreading the deduction out more evenly.

Great discussion here! As someone who's helped several small business owners navigate vehicle depreciation, I wanted to add a few practical considerations for your mom's situation. Since she's in landscaping, make sure to document not just mileage but also how the truck is used for business - hauling equipment, transporting materials to job sites, etc. This strengthens the business use justification beyond just driving miles. Also, with a seasonal landscaping business, consider the cash flow impact. While the 80% bonus depreciation ($26,000 as Marcus calculated) gives a great tax deduction this year, it means much smaller depreciation deductions in future years. If her business has good years and lean years, timing this large deduction during a profitable year makes sense. One last tip - if she's considering any other equipment purchases (trailer, mower, etc.), coordinate the timing since the total Section 179 and bonus depreciation deductions can impact her overall tax strategy. Sometimes spreading major purchases across tax years works better for cash flow and tax planning.

Just be careful with DIY approaches if you have any complexity in your situation. I tried to file my own back taxes and accidentally missed a form, which resulted in the IRS sending me a terrifying letter 6 months later demanding additional money. If you're ONLY dealing with W-2 income and taking the standard deduction, you're probably fine doing it yourself. Otherwise, it might be worth investing in professional help.

As someone who works in tax preparation, I'd strongly recommend starting with the IRS website to download the prior year forms for free. For 2019, you'll need Form 1040 and the instructions are actually pretty straightforward for W-2 only income. A few key points that haven't been mentioned: First, make sure you have ALL your W-2s from each year - employers are required to keep copies for 4 years, so you can request duplicates if needed. Second, if you're expecting refunds (which is likely if you had standard withholding), there are no late filing penalties, but you do need to file 2019 by April 15th of this year to claim that refund. Before paying anyone $200 per return, try filling out one year yourself first. If it's truly just W-2 income with standard deduction, it's much simpler than you think. The IRS also has a helpline specifically for prior year returns at 1-800-829-1040 if you get stuck on specific questions. You can always pay for professional help later if you run into complications, but start with the free options first!