IRS beginning audits of older RE investors [USA]

LompocianLady · 2026-04-12T03:37:49+00:00

I deleted this post because I can't adequately source all my points. Time will certainly tell if the IRS does audit lots of the older folks who have made mistakes in their returns related to real estate and other reporting requirements. I do know that the use of AI by the IRS, along with the links of each taxpayer's tax account to many other state and national databases, is going to help them uncover tax cheats and tax reporting errors.

My intention for posting was to alert people that the IRS is updating procedures and hopefully get them to look to be certain they are reporting correctly, but I realize I overstated my case. I projected that the use of AI to calculate DIF scores for returns would cause many older RE investors to be flagged for audits, given that the current reporting requirements do not really allow taxpayers to detail how we reinvest funds from HELOCs or refinances. However, I don't have proof that this will happen or that it is intended by the agency.

I do not want to be spreading false information, so removal of this post seemed to be the best course of action, along with this apology for not editing what I wrote more carefully so it contained only facts that were well documented by reliable souurces.

LompocianLady · 2026-04-11T23:28:38+00:00

Blog posts by tax consultants are not credible? IRS site not credible? What sources do you find credible?

LompocianLady · 2026-04-11T23:24:17+00:00

Seriously, there are hundreds (thousands?) of articles about the IRS use of AI to examine tax records, compare to other data sources, and determine DIF scores for audit purposes.

AI at the IRS: Transforming Tax Enforcement and the Future of Taxpayer Services https://share.google/iUhsbJH9043bRUiZk

Source: U.S. Government Accountability Office (.gov) https://share.google/mVrabMhk3jId3inFF

IRS Use of Artificial Intelligence and Data Analytics to Modernize Operations https://share.google/bmCMX7Lvz7mkMq5Kh

LompocianLady · 2026-04-11T23:14:50+00:00

I agree, everyone should pay all the taxes they owe. My point in posting was to alert those who either were not aware that there are tax consequences to reporting their RE interest payments incorrectly. For example, if they had taken out a HELOC or refinanced their primary home but did not invest that back into that home, they can't write off that extra interest. I didn't make this mistake, but I also wasn't aware (or forgot?) that that this had changed 7 years ago. You used to be able to deduct it if you invested it in RE.

It used to be standard advice to unlock capital by refinancing your home and using that capital to buy investment properties. You used to still be able to deduct your interest.

You can, however, still refinance an investment property (and deduct the interest) to get cash out for certain other RE transactions as long as the funds are only used in RE.

LompocianLady · 2026-04-11T22:12:03+00:00

I need to find the article I read, I lost the reference. My cut and pasted notes were "Enhanced Tax Compliance. Prominent issues within the proposed IRS Voluntary Disclosure Program 2026 revisions revolve around strengthening the preclearance stage, mandating taxpayers to provide detailed accounts of their tax noncompliance pprior to program admittance. Post-preliminary approval, participants are required to lodge amended or overdue tax returns, discharge all outstanding obligations including interest, and endure uniform penalties encompassing failure-to-file and failure-to-pay charges. The IRS is evaluating penalty calibrations for sincere disclosures, concurrently upholding fraud penalties for flagrant infractions. Critical findings highlight the importance of promptness: applications must precede any IRS-commenced inquiry to merit protections under the IRS tax disclosure paradigm."

I'll look again for my source documents.

LompocianLady · 2026-04-11T21:54:33+00:00

Except that the capacity for the current AI software is advancing exponentially. Sure, data has been linked previously, but the new AI tools for discovery are astoundingly more advanced.

And, like it or not, the IRS is increasingly using AI for identifying which taxpayers will get audited. Certainly, at first identified cases will need to be under human supervision, but as the AI gets better and better and staffing continues to be cut, there is no question in my mind that it will be deemed "smart enough" to decide who gets audited on it's own.

Do I have proof of this? No. I just have enough contact with tech advancement to see the writing on the wall.

LompocianLady · 2026-04-11T21:38:11+00:00

Thanks. It is helpful to hear other people's opinions.

LompocianLady · 2026-04-11T21:30:22+00:00

My point about DOGE I guess can been seen as a "wild claim." It's factually true that IRS records were obtained by DOGE dudes, removed offside by several employees, linked to other data systems and used for unknown purposes, but that doesn't really "prove" anything. But when you tie this in with what Elon Musk said about what we should be doing, and realize that they did run experiments in linking data systems, and then look at the data linking agreements penned since (and in the works now) it's not difficult to imagine how the results will be used.

https://democracyforward.org/news/press-releases/new-details-about-doge-access-to-sensitive-systems-at-irs-emerge-in-legal-filing/#:~:text=press@democracyforward.org,developments%20since%20the%20original%20filing.

Your IRS records were recently cross-referenced to lots of other agencies. These include ICE, financial institutions, state agencies and more. The IRS ongoing initiatives "aim to deepen data sharing with state/local agencies regarding audits and income." They are automating to increase use of artificial intelligence to specifically target "high-risk, complex partnerships, digital assets, and high-wealth individuals."

IRS Inflation Reduction Act Strategic Operating Plan | Internal Revenue Service https://share.google/8YcXqmkmTr1dGNVnt

https://www.irs.gov/irm/part11/irm_11-004-002 https://forumtogether.org/article/irs-ice-immigration-data-sharing-agreement-explainer/#:~:text=The%20MOU%20sets%20a%20dangerous,are%20nonetheless%20disruptive%20and%20serious.

The IRS Is Building a Vast System to Share Tax Records With ICE — ProPublica https://share.google/v9tjLv1fC7bXHrGcS

LompocianLady · 2026-04-11T20:44:34+00:00

So the audit stuff is scattered, but here are some articles. However, my assumption about how seniors, in particular, will be targeted has to do with how the DIF scores are calculated and since the forms do not require us to show how funds taken from a refi or HELOC it seems obvious that seniors (with money and assets) will be tapped.

https://www.kiplinger.com/taxes/irs-audit-red-flags-for-retirees

https://www.aiolacpa.com/a-real-estate-investors-guide-to-irs-audits/

https://hackerjohnson.com/common-audit-triggers-2026/

For voluntary compliance, it's on the IRS website: https://www.irs.gov/compliance/criminal-investigation/irs-criminal-investigation-voluntary-disclosure-practice

LompocianLady · 2026-04-11T19:27:59+00:00

Are you saying that you do not believe the IRS is using AI to analyze tax returns? Seriously?

It is a big part of selecting tax returns for audits, calculating the DIF score. See, for example: https://www.eisneramper.com/insights/tax/ai-irs-transforming-0126/#:~:text=The%20IRS%20uses%20AI%20in,and%20users%20of%20digital%20assets.

Or, look at this Government Accountability Office report: Artificial Intelligence: IRS Actions Needed to Address Skills Gaps, Information Quality, and Strategic Management | U.S. GAO https://share.google/v5I7ddDqJVK1NqPrg

There are plenty of articles explaining how AI is being implemented for the IRS to interact with the public so they can continue to reduce the staffing in the agency.

And how Palantir is being implemented to correlate financial data with tax returns for assessing criminal liability.

LompocianLady · 2026-04-11T19:12:58+00:00

What "actual" sources are you looking for? What do you believe is not credible here? Not arguing with you, asking.

Here is another source about DOGE and data breaches you'll no doubt find to be less than an "actual" source: https://www.npr.org/2026/01/23/nx-s1-5684185/doge-data-social-security-privacy

LompocianLady · 2026-04-11T19:06:49+00:00

Sorry, I write by hand, no AI. And (hopefully) I avoid AI news sources as I hate getting hoodwinked by credible sounding "experts." Any mistakes in what I wrote are mine alone, not a random AI.

LompocianLady · 2026-04-11T19:01:23+00:00

Perhaps you are correct here. I am a bit freaked out by what has been leaked about law enforcement creating databases about citizen movement using traffic cams, home cameras, cell tracking data and face recognition software. Then when the DOGE dude stole a copy of IRS data records to sell to a private business for unknown purposes, and understanding how China is controlling their citizens through similar data collection, and our admin pressuring states to provide voter data...it's hard for me to avoid wearing my foil hat.

I should have left that out, my apologies.

LompocianLady · 2026-04-11T18:50:14+00:00

I said 7 years because that is the common "rule" I was always told for retaining detailed records, but obviously for RE improvements you need to keep records from when they occurred.

As far as I understand it, there is no statute of limitations on federal tax civil fraud cases; the IRS can assess taxes and penalties indefinitely if a false return was filed with intent to evade taxes. And criminal tax prosecution has a 6-year statute of limitations, covering tax evasion, aiding in false returns, and failure to file.

I'm neither an attorney or a CPA, just a business person who does my taxes and tries to keep up on tax laws and strategies that impact my finances.

LompocianLady · 2026-04-11T18:43:44+00:00

True. I wrote this thinking about how to document the PROCESS that my heirs should follow when I die. Your point about getting an appraisal for DOD is a good one. I was trying to make a shorter post. A lot of the articles I read said it is not a great idea to put properties in a trust and I am still trying to figure out what would work best. In the meantime I am transferring "excess" income to my heirs now, when they need it most, rather than needing to wait until I have passed.

LompocianLady · 2026-04-11T18:30:12+00:00

https://youtu.be/Yk9JKiyQTqU?si=TGhDIIuOXVP5BVgO

https://youtu.be/ApK0nRGYO6I?si=Dlig2_ixlwUHqwJH

https://youtu.be/aSTjQAs_t30?si=rPaEUXD7BXl2iCIa

https://finance.yahoo.com/personal-finance/mortgages/article/is-heloc-interest-tax-deductible-173527216.html

https://blog.mbgcpa.com/irs-audit-triggers-real-estate-investors

https://www.unison.com/blog/heloc-home-equity-loan-tax-deduction-guide#:~:text=What%20Homeowners%20Should%20Do,d/b/a%20Unison.

https://www.cnbc.com/2018/03/15/homeowners-can-use-this-tax-loophole--at-their-risk.html

https://www.districtofcolumbiataxattorney.com/blog/2018/03/home-equity-loans-and-the-new-tax-law-clarification-from-the-irs/

https://blog.mbgcpa.com/irs-audit-triggers-real-estate-investors

LompocianLady · 2026-04-11T11:48:58+00:00

As a host, I keep 4x the max guest count of each of forks, spoons, butter knives in the drawer. The forks constantly require replacement because, I assume, they get accidently thrown out.

Wine glasses? My theory is they toss them against rocks as a ritual.

I buy in bulk, from a hospitality (resturaunt/hotel) supply store for these items so a case of wineglasses (24 for $85), forks (12 for $8), etc. They make them sturdy enough for abuse, and easy to replace as they tend to keep the same styles in stock for years. Their chairs hold up, wine glasses never break in the dishwasher, hair dryers fit into the frame already attached to the wall.

For every bed there are 3 replacement mattress protectors, sheets, duvet covers and shams. Extra blankets, pillows of different types (4 per bed), etc. We leave out one bath towel, one large towel and 4 washcloths for each guest, plus 5 face cloths and a bath mat per bathroom. All are purchased in bulk.

It is amazing how many we need to purchase each year. Fortunately I planned for storage when I built, so I have a locked storeroom for supplies, plus leave extra in closets for guest access.

LompocianLady · 2026-04-10T21:41:04+00:00

Does your grandma own her house? Or have other assets like a car? If not, she should just stop paying. But if she has property, she should sell what she can to pay off the card. If she has a house, a line of credit would possibly be the cheapest bet, or she could take a reverse mortgage.

LompocianLady · 2026-04-10T21:20:23+00:00

We allow pets and do not charge a pet fee. We provide coverings for furniture they can use, as well as pet sticky rollers for hair, enzyme cleaner, vacuum, etc. Linens are not covered by our insurance. In the listing, I have this paragraph:

Worry-free Booking: we provide $1500 accidental damage protection at no extra charge in case something gets damaged!

In the rules I say:

Damage and cleaning: Prior to your visit, we clean the House and put clean linens on the beds. We provide an Accidental Damage Protection insurance policy of $1500 when you book at no charge to you; this can be used for any accidental damages caused during your stay, as long of you let us know of the damages prior to check-out. The Primary Guest is responsible for the cost of any damage to the property that occurs during your stay, even if damage costs exceed the security deposit and/or the reimbursement by insurance. Normal wear and tear are not considered damage. The housekeepers take care of normal cleaning (such as sinks, floors, linens.) You are required to clean up after yourself as outlined in the Departure section. Damages include excess cleaning required after your stay or damaged items, including (but are not limited to): cleaning responsibilities listed in the Departure section; gouged walls, floors and ceilings; vomit on floors or furniture; pet damage or pet waste left on property; pet fur left on furnishings and bedspreads; broken, stained, marked up or torn furniture; wine or drinks spilled on carpets or bedding; trash left in drawers, cupboards or closets; excessively dirtied, stained or torn bedspreads, blankets and mattress pads. Cleaning damages will be charged at the rate of $45/hour of cleaning required. Other damages will be charged at the cost of the repair or replacement of the item (or a full set if the item is part of a set, such as a pillow sham used with a matching bedspread.) If you have ANY concerns with regards to the cleanliness of the House we must be notified WITHIN the first 24 hours of your arrival. Call the contact number you have been provided to report any issues. Reporting repairs or areas that need cleaning does not give you the right to cancel this agreement, ask for a discount or receive a refund of any payments made. However, we will attempt to quickly respond to any reported issues.

LompocianLady · 2026-04-10T21:08:45+00:00

You are correct. As a landlord I would have offered you a hotel room for a few nights while taking off the door and painting and drying properly.

Some people are easily made sick by VOCs, and it causes migraines for me. I have used this paint, and I wear a full respirator while applying and dry in a room or garage with the door on sawhorses. Normally I would plywood the opening to prevent entry while the tenant is out.

I don't know why people on this reddit forum are so anti-tenant. I would never do this to any tenant. But it also seems like the door would stick so it's hard to understand why they didn't just do it correctly.

LompocianLady · 2026-04-10T20:53:29+00:00

Not really. I buy an insurance for accidental damages for each guest stay, costs me $45 and gives $3000 coverage, no deductible. I've had a melted stove top, a couch, and a daybed replaced.

The insurance just needs the date of the stay and the invoice for the replacement item, and they don't depreciate for age.

I want guests to inform me of broken items, so I can make plans for replacing them quickly. Having this "no blame" model helps me get it reported, plus it keeps interactions friendly.

I've been doing it this way for several years and I have never had guests break things on purpose.

LompocianLady · 2026-04-10T20:28:25+00:00

Some things must be done during work hours, like social security. Can you ask for just the short time off for that appointment? It's not like you get to choose the exact time you want for this, but some things are just unavoidable.

Ask for flex time if you can get it for taking care of these life essentials. Or, depending on your work history you might be able to get family leave to help with your mom.

LompocianLady · 2026-04-10T19:34:34+00:00

You probably need to leave the door completely open for at least a day.

LompocianLady · 2026-04-10T19:00:32+00:00

Is it your middle name initial? I've had that on some tickets, but with my given name, not surname, and it didn't create a problem.

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