This is exactly the type of complex basis calculation that trips up so many people with inherited property. Just to add one more important consideration - make sure you also factor in any depreciation that may have been claimed on the property during the life estate period. If the second wife ever rented out the property or used any portion of it for business purposes during her life estate, any depreciation claimed would reduce the basis for the remaindermen. This is something people often overlook, but it can significantly impact your capital gains calculation. Also, since you mentioned the property values increased dramatically in your area, you might want to document the local market conditions and any major developments that occurred between 2009 and 2023. While it won't change your basis calculation, having this context can be helpful if the IRS ever questions why there's such a large difference between your basis and the sale price. The good news is that with proper documentation of the 2009 FMV and any qualifying improvements made afterward, you should have a solid foundation for your tax return.

I'm dealing with a very similar situation right now with my father's property that had a life estate for his second wife. One thing I learned from my tax attorney that might be helpful - make sure you get a formal estate tax return filed (Form 706) even if the estate wasn't large enough to require it, because this officially establishes the stepped-up basis values with the IRS. In our case, we filed the return even though the estate was under the filing threshold, and it created an official record of the property's fair market value at the date of death. This gives you much stronger documentation if you're ever audited, since the IRS has already accepted those values. Also, don't forget to check if your state has any additional requirements for basis step-up. Some states handle inherited property differently than federal law, which could affect your overall tax liability when you file both federal and state returns. The key thing I've learned is that with life estates, the IRS really scrutinizes the basis calculations because of the potential for large gains, so having rock-solid documentation from day one is crucial.

Has anyone ever tried figuring out the original basis by looking up the county property appraiser's website? My uncle's original purchase documents were destroyed in a flood, but I was able to find his original purchase price by searching the county records online. Many counties have this info digitized now and searchable by address.

I'm dealing with almost the exact same situation right now with my father's property! He added me and my sister to the deed about 18 months before he passed, and we just sold it last month. One thing that really helped me was getting a professional appraisal of the property as of the date of death - this gave me the stepped-up basis value for the inherited portion. It cost about $400 but was totally worth it for the tax accuracy. The appraiser was also able to provide documentation that the IRS would accept if I ever got audited. Also, don't forget to look for any capital improvements your mom made beyond just the kitchen renovation. Things like new flooring, roof repairs, HVAC upgrades, even major plumbing work can all add to the basis. I found receipts in my dad's files for stuff I didn't even remember him doing. One more tip - if you can't find all the improvement receipts, some contractors keep records for years and might be able to provide copies if you remember who did the work. Good luck with everything - this stuff is so stressful but you'll get through it!

Has anyone used TurboTax for reporting SSDI backpay with attorney fee discrepancies? I'm wondering if the standard software can handle this complex situation or if I need something more specialized.

I'm dealing with a very similar situation right now! My SSDI backpay 1099-SSA shows attorney fees that exceed the federal cap, and it's been a nightmare trying to get it resolved. One thing I learned that might help: make sure to keep detailed records of ALL your communications with SSA about this overpayment issue. I started a simple spreadsheet tracking every phone call, case number, and representative I spoke with. This documentation has been invaluable when explaining the situation to tax preparers. Also, don't wait on SSA to fix their records before filing your taxes if you're up against deadlines. As others mentioned, you can report the correct income amount and use Form 8275 to explain the discrepancy. The key is having solid documentation showing what the actual attorney fee should be versus what's reported. The stress is real - I know exactly how you're feeling. But from what I've researched and experienced, the IRS is actually pretty understanding about these SSA reporting errors as long as you're transparent about the discrepancy and provide supporting documentation.

Anyone else notice that the IRS interest rate for underpayment keeps going up? I swear it was like 5% a couple years ago during covid, and now it's closer to 8%. Makes a huge difference when calculating these penalties on large underpayments.

The underpayment penalty calculation can definitely be confusing! To clarify what others have mentioned - it's not a flat 5% hit on your total underpayment. The IRS uses a quarterly system where they calculate how much you should have paid each quarter (based on either 25% of this year's liability or the safe harbor amounts), then charge interest on any shortfall from each quarterly due date until paid. For your $135k situation, the actual penalty depends on when during the year you fell short. If most of that underpayment was due to Q4 capital gains, your penalty might be much lower than if you were short all year. The current rate is around 8% annually (about 2% per quarter). One important thing to check - if your AGI last year was under $150k, you only need to pay 100% of last year's tax to avoid penalties, not 110%. That could make a big difference in whether you actually owe any penalty at all!

19 What about Credit Karma Tax? I heard they do free filing including for self-employment. Has anyone used them for gig work taxes?

I've been doing gig work (mainly Uber and some DoorDash) for about 8 months now and just went through my first tax season. I ended up using TaxAct which seems like a good middle ground between the expensive options and the basic free ones. TaxAct cost me about $25 for federal and state filing with self-employment forms, which is way cheaper than TurboTax but still gives you good guidance for gig worker deductions. They have a specific section for rideshare drivers that walks you through vehicle expenses, mileage tracking, and all the common deductions we can claim. For crypto, they handle it pretty well too - you can import from some exchanges or enter manually. The interface isn't as fancy as TurboTax but it gets the job done and saved me probably $100+ compared to the premium options. Might be worth looking into if you want something between FreeTaxUSA and the expensive software!