Navigating the Audit Landscape for Real Estate Bonus Depreciation Claims

As the Tax Cuts and Jobs Act (TCJA) continues to impact tax strategies, more investors are leveraging bonus depreciation on real estate investments. However, with this opportunity comes the risk of increased IRS scrutiny. Recent reports reveal a surge in audits targeting individuals who have claimed bonus depreciation on real estate assets.

Under the TCJA, certain properties acquired after September 27, 2017, can qualify for 100% bonus depreciation if placed in service by the end of 2022. This has led many to explore cost segregation studies to accelerate depreciation deductions and reduce tax liabilities.

While cost segregation can be a powerful tool, it's crucial to understand the potential risks involved. The IRS is taking a closer look at these claims, and taxpayers need to ensure their cost segregation studies are supported by thorough documentation and a clear understanding of the rules.

One key aspect of navigating this audit landscape is the concept of "audit defense." Many cost segregation providers tout their ability to defend their clients in the event of an IRS audit. However, it's essential for taxpayers to thoroughly vet these claims and understand what "audit defense" truly entails.

Audit defense should not be a mere marketing gimmick. It should involve a comprehensive approach that includes:

• Accurate and well-documented cost segregation studies: The study should be performed by qualified professionals and supported by detailed analysis and documentation.
• Clear communication with the IRS: If an audit occurs, the taxpayer should be able to communicate effectively with the IRS, providing the necessary documentation and addressing any concerns.
• Professional representation: If needed, the taxpayer should have access to experienced tax professionals who can represent them in the audit process.

In conclusion, as the IRS ramps up its focus on bonus depreciation claims, taxpayers need to be proactive in ensuring their cost segregation studies are solid and their audit defense is more than just a promise. By choosing reputable providers and staying informed about the latest IRS guidelines, investors can navigate the audit landscape with confidence and peace of mind.

For more information about the importance of audit defense on your cost segregation study, schedule a commitment-free meeting with us.