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Home · Property Management · Tax Tips : IRS to Increase Audits of Landlord Tax Returns

Changes will require landlords to be more careful about records and bookkeeping

The Treasury Inspector General for Tax Administration issued a report in December 2010 recommending increased scrutiny of tax returns with rental real estate activity, estimating that the change could recover over $27 million in lost revenue over 5 years.

The audit was conducted because of a 2008 Government Accountability Office report that over half of the individual taxpayers that reported rental real estate activity misreported that activity, resulting in a shortfall of $12.4 billion in 2001 alone, according to San Francisco Bay Area tax audit experts, ProActive Tax Solutions.

No matter how honest you are on your taxes, owning rental property is an automatic audit trigger since these reports were issued. Every landlord is that much more likely to be audited, said Georgia Rogers, President of ProActive Tax Solutions.

The report from the Treasury Inspector General also recommended more careful examination of un-allowed passive losses from prior years, and of people claiming to be real estate professionals. In response, the IRS has changed the Schedule E (the form for real estate income and losses) for tax year 2011. The new forms will require more information about rentals, including the type of property, the number of days it was rented, and any days for personal use.

These changes will require landlords to be more careful about records and bookkeeping,” according to Rogers.

If you do get an audit letter, professional representation can get you through the process. ProActive Tax Solutions can be your advocate and help you pull together all the records to present your case, said Rogers. Our clients rarely even have to speak to the IRS.

For more information about Bay Area Tax audit advice, contact ProActive Tax Solutions. (415) 413-3473 or http://www.proactivetaxsolutions.com.

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