I've done taxes, audits, financial statement preparation, general bookkeeping.

There’s the potential to be audited and you need to keep good records.Many are afraid of the terms I’m not I plan to accept the loan I’ve read the application multiple times and I feel like I understand the rules.

Additionally, I have a suspicion that deducting part of the sq. footage for rental purposes & depreciating the asset will open me up to being audited (I am not scared of being audited, I would just rather not go through the trouble). 

The security interest Borrower grants includes all accessions, attachments, accessories, parts, supplies and replacements for the Collateral, all products, proceeds and collections thereof and all records and data relating thereto.So one could argue that a ladder or your printer that is company owned could not be sold or transferred without contacting the SBA for permission.I think at the end of the day, as someone said on another post, that if you make you payments till the loan is paid in full you will likely never be audited.

Couple of follow up questions so I apologize for over picking your brain:On #2 above do you ever do a financial lease audit with the property management company or request the sponsor's aged receivables to ensure bad debt isn't being left off the P&L? 

Would this method of paying tax would pass a Local Authority and/or IRS audit?

Just have a audit 'paper trail' proving that you were living, 'a legal resident', in another property at the time you made your repairs. :)

Qualifies until you get audited.

@John TeachoutWhen you say you don’t have a problem meeting the requirements, so you mind telling us how many times the irs has audited you?

You must have checked out the IRS website. https://www.irs.gov/businesses/cost-segregation-audit-techniques-guide-chapter-3-cost-segregation-approaches