But how do you PROVE you sold for less than you paid when you don't have receipts for clothes you bought years ago? Seems like the IRS could just assume it was all profit.

You don't necessarily need original receipts. The IRS understands that people don't keep receipts for clothing purchases from years ago. You can make reasonable estimates based on the type and brand of clothing. For example, if you sold a Nike hoodie for $30, you could reasonably estimate you paid $60-70 for it new. Document your estimates in a spreadsheet with descriptions of each item. The burden of proof for personal items sold casually isn't as high as for business inventory. Just be reasonable and consistent in your approach.

Yep, happened to me too. But you can deduct the shipping costs as expenses on Schedule C. Just keep track of what you spent on shipping for each item. I created a simple spreadsheet with item sold, sale price, shipping cost, and estimated original purchase price.

Doesn't this still require them to charge market rate interest though? And wouldn't the OP still need to qualify for the mortgage with their limited student income? I'm curious how this would work practically.

The IRS only requires what's called the Applicable Federal Rate (AFR) for family loans, which is typically much lower than market mortgage rates - sometimes less than half. In January 2025, the long-term AFR is only around 3.4% while market mortgage rates are over 6%. Regarding qualification, that's the beauty of a private family loan - there's no formal qualification process like with a bank. The grandparents can set whatever terms they're comfortable with based on their knowledge of the grandchild's situation and future earning potential. Many families set up lower payments during school years with a balloon adjustment after graduation when income increases. The biggest tax advantage is that the grandparents can spread any capital gains across multiple years rather than recognizing it all in one tax year, potentially keeping them in a lower tax bracket. Meanwhile, the grandchild can still deduct the mortgage interest just like with a traditional mortgage.

Couldn't they just use a life estate deed? That way the grandparents retain the right to live in the property until death, but ownership transfers automatically at death - getting the step-up in basis benefit while still guaranteeing the property goes to the grandchild?

A life estate deed is definitely worth considering, but it has some limitations. While it does allow for the step-up in basis at death and avoids probate, there are a few important considerations: The grandparents in this case don't actually live in the property (OP mentioned it's their "2nd house"), so a traditional life estate might not make sense. Instead, they might consider a remainder interest deed with retained right of sale, which would still provide the step-up in basis while giving them flexibility. Another potential issue is that creating a life estate now could trigger gift tax consequences on the remainder interest (the portion effectively being given to the grandchild). The IRS has specific formulas to calculate the present value of that remainder interest based on the life expectant's age. Also worth noting that with a life estate, the original owners can't sell or mortgage the property without the remainder beneficiary's consent, which may or may not be desirable depending on the grandparents' future needs.

This is such good advice! I learned this the hard way too. I keep a spreadsheet now tracking all expenses for my dad who lives with me. I also have him pay his portion of expenses from his account directly to mine with notes like "Dad's share of utilities" so there's a paper trail.

This happened to my grandma too! She had like $20 in dividend income from some ancient account she forgot about and it caused such a headache with the IRS. They're really strict about everything being reported properly.

3 Is there a specific format the IRS requires for this gambling log? Can I just create a spreadsheet or do they want something more formal? Seems like a lot of work to track every single bet.

19 There's no official IRS form for the gambling log, so a spreadsheet works perfectly fine. The key is consistency and detail. For occasional gamblers, it's not too burdensome, but I understand it can be a lot if you gamble frequently. For high-volume bettors like sports gamblers, most online platforms allow you to download your complete betting history, which the IRS will generally accept if it contains the necessary details. The personal log becomes more important for cash games and situations where electronic records aren't automatically generated. The IRS mainly wants to see that you're tracking your activity in a systematic way.

25 Wait, so you're saying even if I deduct $15k in losses against my $82k win, my AGI still goes up by the full $82k? That seems really unfair!

What about equipment I bought for my business that I could still sell if the business fails? Is that still considered "at risk"?

Yes, that equipment is still considered "at risk" even if you could potentially sell it later. The question is really asking if you could potentially lose the money you invested, not if you definitely will lose it. For example, if you bought a $2,000 computer for your business, it starts depreciating immediately and you might only get $800 if you had to sell it used. That potential for loss makes it "at risk." The IRS is trying to distinguish normal business investments from certain tax shelter arrangements where investors are protected from any possibility of loss.

Did you have to file an amended return or was just responding to the letter enough?