7 IRS Audit Triggers for Real Estate Investors

Real estate investing can be lucrative, but it also comes with tax obligations. To avoid an IRS audit, make sure you are aware of these seven triggers that can raise red flags.

1. Passive Losses

If you are claiming passive losses from your real estate investments, be aware that the IRS closely scrutinizes these deductions. Make sure you have sufficient documentation to support your claims.

2. Excessive Deductions

Deducting too many expenses can raise suspicion with the IRS. Make sure you are only deducting expenses that are necessary and reasonable.

3. Rental Income

If you are not reporting rental income from your real estate investments, the IRS may take notice. Make sure you are accurately reporting all rental income.

4. Business Use of Home

If you are claiming a home office deduction, be aware that the IRS may scrutinize this deduction. Make sure you meet the strict requirements for this deduction.

5. Large Charitable Contributions

If you are making large charitable contributions, the IRS may investigate to ensure that the donations are legitimate and that you have proper documentation.

6. Cash Transactions

Cash transactions can raise red flags with the IRS, especially if they are not properly documented. Make sure you keep detailed records of all cash transactions.

7. Foreign Assets

If you have foreign assets, make sure you are complying with all reporting requirements. Failure to report foreign assets can lead to serious consequences, including significant fines and penalties.

Conclusion

Real estate investing can be a great way to build wealth, but it also comes with tax obligations. By being aware of these seven audit triggers, you can help avoid an IRS audit and ensure that you are complying with all tax laws and regulations.