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Updated over 1 year ago on . Most recent reply

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53
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Deborah R.
  • Real Estate Investor
  • Tampa, FL
15
Votes |
53
Posts

Is Bonus Depreciation Worth the Audit Risk?

Deborah R.
  • Real Estate Investor
  • Tampa, FL
Posted

For 2022, my husband met Real Estate Professional status.  I am a high income W2 earner.  We filed an extension for 2022 taxes and are just finalizing them now.  

Our CPA says that if I cost segregate and bonus depreciate two assets we bought, that it increases my audit risk since I have a higher W2.  

Is that true?  I don't want to be audited.  But, I also think that we're doing everything according to the law.  He mets REPS, and we are allowed to bonus depreciate.  So, why not do it?  

Any thoughts/experience?  

Thanks in advance!  Debby 

Most Popular Reply

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Michael Plaks
#1 Tax, SDIRAs & Cost Segregation Contributor
  • Tax Accountant / Enrolled Agent
  • Houston, TX
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Michael Plaks
#1 Tax, SDIRAs & Cost Segregation Contributor
  • Tax Accountant / Enrolled Agent
  • Houston, TX
Replied

@Deborah R.

Yes, it increases your audit risk. Especially due to your husband qualifying for REP status. The IRS actually has a targeted audit program against REP status. 

So what? If you actually qualify for the REP status and have good records, you don't have much to worry about. Yes, you can get audited. You can also get audited even if you don't employ these strategies. 

@Scott E. - I'm pretty sure you misunderstand how your CPA's audit insurance works. He cannot "assume all liability" from an audit. That would mean paying your taxes and interest+penalties for you. He won't do it. What audit insurance normally does is protects you from paying him additional money for defending you in case of an audit. But not from an adverse result of an audit, should it happen. Just like the best lawyers can lose a case, we can lose an audit. In this situation, you still have to pay the IRS additional taxes, interest and penalties.

  • Michael Plaks
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