That's where they nailed me in my audit yet it was fully documented.

You would need to be able to prove or demonstrate that you have the intent to hold for rental or investment purposes should you be audited.

ONe seller wanted a full audited financial statement .. the other ( house I finally bought was good with a POF of cash in bank and normal credit.)...

In Maryland it is one of the things they target in audits of our records and it results in a $10,000 fine if you did one without it veing disclosed (and agreed to in our listing agreements)Interestingly enough, most agents, including many big time veterans, have no clue what a variable rate commission is until they get fined for doing it and not disclosing it.

Worked in Real Estate audit for a Mid Size firm, but now have my own boutique tax and accounting practice as well as a job in finance company.

You and your agent should set the expectations upfront that the contractor needs to provide a video walk around along with a report from “audit trail” (It is a $10 app on the IOS store) at the end of each week.

J Scott,Couple items in this thread that I will hit upon. 1st, aged entities is a red flag for an audit and trouble down the road.

Heck, my CPA and I regularly discuss and are forced to make our own assumptions on how the IRS may interpret something in our real estate taxes, if we were to get audited.

Only upside is audit risks on partnerships are much lower- because there's so much more info you give the IRS up front. 

Prior to that we had several recommended by our attorney's at the time & that was another disaster, an audit & 2 years of extensions because they couldn't get a handle on our REI & Corporations etc.