I've been a tax preparer for years and see this situation all the time. Just remember that the earnings portion ($900.06) is taxable in the year you take the distribution (2024), NOT the year you made the contribution. That trips up a lot of people. If you're under 59½, you'll also owe the 10% early distribution penalty on just the earnings portion. The original $6500 contribution comes back to you tax and penalty free.

This is a really helpful thread! I'm dealing with a similar situation but with a twist - I made the excess Roth IRA contribution in late 2023, but didn't realize my income was over the limit until I was preparing my 2024 taxes this year. By then it was past the 2023 filing deadline. I ended up removing the excess contribution plus earnings in early 2024 and got a 1099-R with code JP. Based on what everyone's saying here, I think I'll owe both the 10% penalty on the earnings AND the 6% excess contribution penalty for 2023 since I didn't remove it before the filing deadline. Does that sound right? And if so, do I need to amend my 2023 return to report the 6% penalty, or does everything just go on my 2024 return?

Just a quick tip - make sure you keep EVERY document related to this transaction. The county's initial offer letter, any negotiation correspondence, closing documents, receipts for any expenses related to the transaction, and especially documentation showing the original purchase price of your property. I went through this last year and created a complete file with all these documents which saved me when the IRS questioned my capital gains calculation. Also take photos documenting exactly what portion of your property is being taken before any work begins!

As someone who recently went through a partial property taking for a utility easement, I want to emphasize the importance of understanding the timing rules for capital gains. Since this is an involuntary conversion due to eminent domain, you actually have some special options that might help reduce your tax burden. Under IRC Section 1033, you may be able to defer the capital gains by reinvesting the proceeds into "like-kind" property within a specific timeframe (usually 2-3 years from the end of the tax year you received the compensation). This could be particularly beneficial given that your gain ($66,300 as calculated above) would likely exceed the prorated Section 121 exclusion. Also, don't forget that you can add any legal fees, appraisal costs, and other expenses related to fighting or negotiating the taking to your cost basis, which would reduce your taxable gain. I ended up saving about $3,000 in taxes by properly documenting these additional costs. Given the complexity and the significant dollar amount involved, I'd strongly recommend consulting with a tax professional who has experience with eminent domain cases before filing. The potential tax savings from getting this right could easily justify the consultation fee.

Has anyone tried handling this by separating the transactions? Like paying for business travel with cash, then reimbursing yourself personally with miles for other trips? Seems like that might solve the problem.

I dealt with this exact situation when I started my consulting business! The key thing to understand is that the IRS looks at actual cash outflow, not the "value" of rewards used. Here's what I learned from my tax attorney: When you use personal miles/points for business travel, you can't deduct anything because there's no actual business expense - you're essentially using a personal asset (the miles) that you already "paid for" through past personal spending. However, don't forget about the ancillary costs! If your husband paid any booking fees, taxes, or upgrade costs when redeeming those miles, those actual cash payments can be deducted as legitimate business expenses. For future planning, consider doing what Mateo suggested - pay cash for business travel (fully deductible) and save your personal miles for vacations. This maximizes your tax benefits while keeping everything clean and audit-proof. Also keep detailed records showing the business purpose of any travel, regardless of how you paid for it. The IRS will want to see that it was genuinely business-related.

Just to add one more important point that might help future readers - timing matters too! If you DO end up needing to issue 1099s (like for rental property work), remember that 1099-NECs are due to recipients by January 31st and to the IRS by the same date if filing electronically. You also need to send Copy A to the IRS and provide copies to your contractors. For those managing multiple properties or running businesses, I'd recommend setting up a system early in the year to track contractor payments and collect W-9s upfront. It's much easier than scrambling in January to get all the paperwork together. And definitely keep detailed records of what work was done where - especially if you have both personal residence work and rental property work with the same contractors.

As a newcomer to homeownership, I really appreciate this thorough discussion! I just bought my first house and was already stressing about potential 1099 requirements after hearing conflicting advice from friends. It's such a relief to understand that for personal home improvements, I don't need to worry about issuing 1099s at all. The distinction between personal vs. business expenses makes perfect sense now. I can see how easy it would be to get confused, especially when you hear about rental property owners or business owners dealing with these requirements. I'm bookmarking this thread for future reference - the advice about getting W-9s upfront and keeping detailed records will definitely come in handy if my situation ever changes. Thanks to everyone who shared their experiences and knowledge. This community is incredibly helpful for navigating these tax complexities!

this might be a dumb question but i graduated in may 2024 too and my parents have always claimed me as a dependent. can i still use the 1098-T for anything if they claim me? or does it only matter for them?

Great question! I was in a similar situation when I graduated. You'll definitely still receive your 1098-T for spring 2024 since you were enrolled and paid tuition during that tax year. The school is required to issue it by January 31st regardless of your graduation status. One thing to keep in mind - if you're starting your career and expect to earn more income this year, it might be worth comparing whether you or your parents (if they can still claim you as a dependent) would benefit more from the education credits. Sometimes the credits are more valuable for parents in higher tax brackets, but other times new graduates in lower brackets can get more benefit, especially from the refundable portion of the American Opportunity Credit. Also, don't forget to keep track of any student loan payments you start making this year - you might be eligible for the student loan interest deduction on next year's return!