Key Takeaways
- Five most expensive errors: repair/improvement misclassification, unclaimed depreciation, inadequate REPS documentation, incorrect basis, and missed QBI safe harbor.
- The IRS must recapture depreciation at sale whether or not the deduction was claimed—always claim depreciation.
- Audit triggers include large rental losses, REPS with full-time W-2, and repeated 1031 exchanges without gain recognition.
- A three-layer tax control framework (prevention, detection, correction) costs $500-$2,000/year vs. $5,000-$25,000 in audit defense.
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Test Your Knowledge
1.Which of the following is the most common IRS audit trigger for rental property investors?
2.What type of internal control system helps prevent the most common tax errors?
3.What is the most effective way to prepare for a potential IRS audit of rental property deductions?