I fortunately don't have any other traditional IRA assets - I've always used my 401k for pre-tax retirement savings and only opened the traditional IRA temporarily for the backdoor process. So I think I'm ok on the pro-rata rule, but that's definitely an important point for others to consider. Actually, I'm wondering if there's any advantage to purposely waiting until the market goes up before doing the conversion next time? That way I could potentially use up some of this basis carryforward?

Intentionally waiting for the market to go up before converting could help use up your basis carryforward, but it comes with risks. The longer you wait to convert, the more potential tax liability you could create if investments grow substantially before conversion. Remember that any growth that occurs while the money sits in the traditional IRA will be taxable when you convert. So while waiting might help with the basis issue, it could create a different tax problem. Most financial advisors recommend doing the conversion quickly after contribution to minimize taxable growth. It's usually a better strategy to just continue with regular backdoor contributions and let the basis work itself out over time rather than trying to time the market for tax purposes.

The basis carryforward calculation happens on Form 8606. If you contribute $6,000 (non-deductible) to a traditional IRA but the value drops to $5,500 before you convert to Roth, you'll have: - Line 5: $6,000 (your non-deductible contribution) - Line 8: $5,500 (the amount you actually converted) - Line 9: $0 (assuming no previous basis) - Line 10: $6,000 (from line 5) - Line 11: 1.000 (divide line 10 by line 8, but capped at 1.000) - Line 13: $5,500 (line 8 × line 11) - Line 14: $500 (line 10 minus line 13) That $500 on line 14 is your basis carryforward to next year's Form 8606.

Thanks for pointing this out! Of the 26% non-rental time, we probably used it personally for about 20 days total throughout the year. The rest was just vacancy between bookings. Does that change how I should handle the depreciation?

Since you used it for 20 days personally and that's less than both 14 days and 10% of your rental days, you're still in the clear to treat it as a regular rental property. Your depreciation calculation remains the same - you can deduct 74% of the annual depreciation amount. Remember though, when allocating other expenses like utilities and maintenance, you'll need to use the 74% factor consistently. And keep good records of personal use days versus rental days versus vacant days, as the IRS might ask for this documentation if you're ever audited.

Is that true for 2024 taxes? I thought there was still a $600 threshold before they send a 1099-K?

That's a great tip! I definitely didn't put my SSN on every page, just on the cover letter and the forms. Do you know if there's any specific format they prefer for this info? Like should it be in the header or just handwritten at the top?

The IRS prefers it in the upper right corner of each page. You can handwrite it or type it, but make sure it's clear and includes both the SSN and the tax year in question. Something like "SSN: XXX-XX-XXXX Tax Year: 2021" is perfect. Also, don't staple anything! Use paper clips if you need to keep pages together. Staples slow down their processing because they have to remove them to scan everything.

TAS has been swamped since the pandemic. I tried using them last year and they told me they were only taking "hardship" cases where people were facing immediate financial harm. Worth a try though!

That's a really good point about business expenses! My partner definitely had work-related costs during those years, like tools and supplies. Do you know if they can still claim those deductions when filing so late? And did your sister's husband end up having to file for all the missing years?

Yes, they can still claim legitimate business deductions when filing late returns. The key is having some form of documentation or reasonable estimates that could be justified if questioned. Even if they don't have perfect records, they should make reasonable estimates of business expenses rather than filing as if they had none. My sister's husband ended up filing 7 years back (which was what the IRS requested when they contacted him). The IRS was primarily concerned with the most recent years and years where he had significant income. They worked out a payment plan and the whole process was less catastrophic than they initially feared.

This is true but a bit alarmist. Yes, improperly claiming exempt is an issue, but the IRS distinguishes between tax avoidance (legal but aggressive) and tax evasion (illegal). Most cases like this end up as civil matters with penalties and interest, not criminal tax evasion charges.

That's such a good point about the brokerage account! We hadn't even considered that her local bank might not be able to receive the stocks. Did you have to set up the international account from the US side or did your daughter have to do it locally?

We had to coordinate from both sides. My daughter had to open a specific type of account with a brokerage in Australia that had international capabilities. Then on our end, we had to complete special transfer forms with our US brokerage that included her foreign account details and some extra documentation verifying her identity. It wasn't particularly difficult, but it did take about 3 weeks to get everything set up properly. Her brokerage also required documentation showing the origin of the assets (basically proving they were a gift and not some kind of suspicious transfer). Just make sure to start the process well before you want to actually transfer the stocks.

Good point! Bermuda actually has no income tax, capital gains tax, or gift tax. It's basically a tax haven which makes it pretty ideal for receiving assets. She might still need to report foreign accounts depending on local regulations, but tax-wise she's in a pretty advantageous position.