How to Avoid An IRS Audit As a Real Estate Professional

Are you a real estate professional? Then, how do you avoid an IRS audit? Toby Mathis and Jeff Webb of Anderson Advisors answer your tax questions. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

• Do you pay tax on discrimination judgment? If so, how much percentage? What qualifies as non-taxable income? Usually, pain and suffering is non-taxable and then compensatory judgments where they're paying you for lost wages is always taxable because your wages would have been taxable.
• Are solar credits available for the installation of solar panels and equipment on an RV or travel trailer? What if the RV or travel trailer is used to live in for a substantial part of the year? You can put solar panels on your main home and second home. Your RV could qualify to be your second home as long as it has a bathroom, kitchen, and sleeping area.
• We plan to claim qualified real estate professional status for my unemployed wife this year. We have been maintaining records, and she has been using a separate phone and email to track all her real estate efforts. We live in New Jersey, and if we get audited for this, what will the IRS likely ask for and how many years back? Forget about the phone and its deductibility and the email. Instead, keep good logs of her time spent to meet the various tests for real estate professional status. You may be asked about any contemporaneous records and numbers. If you are a real estate professional and you're accelerating depreciation, you'll need your cost seg report and records of your purchase and improvements. It is unlikely that you will be audited.

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Resources:

Homeowner’s Guide to the Federal Tax Credit for Solar

https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics

26 U.S. Code § 45L - New energy efficient home credit

https://www.law.cornell.edu/uscode/text/26/45L

Inflation Reduction Act of 2022

https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/15/by-the-numbers-the-inflation-reduction-act/

Real Estate Professional Status

https://www.aicpa.org/resources/article/tax-rules-for-real-estate-professionals

121 Exclusion

https://www.irs.gov/taxtopics/tc701

Opportunity Zones

https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions

Anderson Business Advisors

https://andersonadvisors.com/

Anderson Business Advisors on YouTube

http://aba.link/YouTube

Anderson Business Advisors on Facebook

https://www.facebook.com/AndersonBusinessAdvisors/

Anderson Business Advisors Podcast

https://andersonadvisors.com/podcast/