Don't forget about IRS Publication 551 which specifically covers "Basis of Assets" - it has examples for different scenarios. The most important thing to remember is that distributions from rental activities typically aren't affecting your basis the way you might think. For regular rental income: 1. Rental income doesn't reduce your basis 2. Rental expenses don't increase your basis (except capital improvements) 3. Depreciation DOES reduce your basis 4. Money you take out of the rental business doesn't affect basis This is different from partnership distributions where distributions can reduce your basis. Are you operating this as a sole proprietor or through an entity? That makes a big difference in how basis is calculated and tracked.

I'm actually dealing with this right now for a property I sold last year. One tip nobody mentioned yet: KEEP EVERY RECEIPT for improvements! I mean everything. New roof? Keep it. New appliances? Keep it. Even small stuff like cabinet hardware adds up. When I sold my rental last year, I was able to add almost $67k to my basis from improvements I made over 8 years. That significantly reduced my capital gains tax. I used a simple Google Sheet to track: - Original purchase price - Plus: Improvements (itemized by date) - Minus: Depreciation taken each year - Equals: Adjusted basis at time of sale The IRS allows you to include closing costs in your basis too! Don't forget those.

One thing nobody's mentioned - if you received a W-2G form from the casino for your winnings, those amounts MUST be reported on your tax return regardless of your overall losses. I learned this the hard way. Proper procedure is: 1. Report ALL gambling winnings as income (including amounts on W-2G forms) 2. Itemize and deduct your losses (up to the amount of winnings) on Schedule A If you didn't do it this way on your original return, the IRS computer system will flag the discrepancy between the W-2G they received and what you reported. That's probably why you got the letter.

Based on everyone's advice here, it sounds like you have a solid case for resolving this issue. The key points I'm seeing are: 1. You need to respond within the 30-day deadline mentioned in your IRS letter 2. Gather all your documentation: casino player statements, your phone notes log, bank/credit card statements showing gambling-related transactions 3. Be transparent that you misunderstood the reporting requirements - you should have reported the W-2G winnings as income and then deducted losses on Schedule A Since you mentioned you're "freaking out" about this, I'd recommend taking a systematic approach. Start by organizing all your documentation chronologically, then draft a clear response letter explaining your net loss position with supporting evidence. The good news is this seems like a common misunderstanding rather than anything fraudulent, and the IRS generally works with taxpayers who provide proper documentation and respond in good faith. Many people here have successfully resolved similar situations, so while it's stressful, it's definitely fixable. If you're still feeling overwhelmed after gathering your documentation, consider consulting with a tax professional who has experience with gambling tax issues - they can review your response before you submit it to make sure everything is properly formatted and includes the right supporting evidence.

Does anybody know if the IRS charges interest when they owe YOU money? Like if they're taking forever to process a refund or in this case where they discovered they owe more. Seems only fair since they charge US interest when we owe THEM...

This is actually more common than you'd think! The IRS has gotten much better at automatically catching missed credits and deductions in recent years. With married filing jointly and kids as dependents, my first guess would be that you either missed or miscalculated the Child Tax Credit, Additional Child Tax Credit, or potentially the Earned Income Credit if your income falls within the qualifying range. The fact that they're processing an 8x larger refund suggests it's probably one of the major credits rather than just a simple math error. Don't panic - if the IRS is giving you more money, they've already done the math and verified it on their end. I'd definitely wait for that explanation letter before calling. It will break down exactly what they adjusted and why. Once you have that letter, you can compare it line-by-line with your original return to understand what happened. If everything checks out (which it probably will), then you can breathe easy knowing you legitimately qualified for more money than you originally claimed. The only thing I'd be cautious about is making sure you don't spend the money immediately just in case there's some kind of error that needs to be corrected later, but honestly, IRS adjustments in the taxpayer's favor are usually pretty solid.

Just to share my experience - I had a similar situation last year but my LLC had about $200 in expenses and no income. I called the IRS and after being on hold forever, they told me I definitely needed to file an amended return with Schedule C showing the loss. They said even though it wouldn't change my tax situation much, it was important for their records to show the business activity. The agent was actually pretty nice about it and said as long as I filed the amendment within a reasonable time, there wouldn't be penalties since I wasn't underpaying taxes.

I went through this exact same situation two years ago with my dormant LLC! The stress was real, but it turned out to be much less dramatic than I expected. Here's what I learned: Yes, you technically should file an amended return (Form 1040-X) with Schedule C showing the zero activity. Even though there's no tax impact, the IRS wants documentation that the LLC exists and had no activity rather than just ignoring it completely. The good news is there are no penalties when you're not underpaying taxes. I filed my amendment about 6 weeks after realizing my mistake, and it was processed without any issues or additional fees. Just make sure to clearly indicate on the Schedule C that this was a business with no activity during the tax year. One tip: keep good records going forward. Even if your LLC continues to have zero activity, you'll want to document that fact each year so you don't forget again. It's much easier to include a zero-activity Schedule C from the start than to amend later!

One mistake I made last year - I only reported my net winnings from betting (winnings minus losses) instead of reporting the full 1099 amount as income and then deducting losses separately. Got a letter from the IRS a few months later! The system flags discrepancies between reported 1099 income and what you put on your return. Make sure you report the FULL 1099 amount on Schedule 1 as income, then deduct eligible losses on Schedule A if itemizing.

This is exactly the situation I found myself in last year! Here's what I learned from my tax preparer: You absolutely must report the full 1099 amounts from PrizePicks and Underdog as income - there's no way around that. The IRS gets copies of those 1099s and will expect to see that income on your return. For your losses from other sportsbooks, you can deduct them on Schedule A, but only up to the amount of your gambling winnings. So if you had $5,000 in 1099 winnings but $8,000 in total losses, you can only deduct $5,000 of those losses. The key decision is whether itemizing (to claim those losses) gives you a bigger deduction than taking the standard deduction. For 2023, the standard deduction was $13,850 for single filers. So unless your gambling losses plus other itemizable deductions (like mortgage interest, state taxes, charitable donations) exceed that amount, you're better off taking the standard deduction and just paying tax on the full 1099 income. Keep every record you can - screenshots, bank statements, anything that shows your betting activity. Even if you don't itemize this year, you might need those records later.