To lower audit potential a partnership LLC is 1 tenth the likelihood of IRS audit but you need a partner.

@Elealeh Fulmaran that’s exactly what we’ve done, but we are auditing all of the for the last year.

You can also find detailed guidance in IRS Publication 925 and the IRS Cost Segregation Audit Techniques Guide.

I’ve found that using a simple, automated tracking system for rentals has made it way easier to document hours in a way that would hold up in an audit, so getting that in place before reno/launch is huge.

If you ever get audited--unlikely but still possible--you'll die without a decent accounting system.

I used diycostseg.com … one of the best and they also provide audit defense.

I have never seen any financial statements or documents or 3rd party audits etc.  

The funds in this case were likely held in their individual name, and a death, bankruptcy, or other could affect the ability to close out and complete the 1031 exchange.The safety and protection of exchange funds should be of utmost importance, which is why you should always work with a qualified intermediary that has some sort of regulatory oversight; not just an internal audit or something, but real regulatory oversight with an outside, independent regulatory audit. 

There isn’t a big, headline case specifically about a landlord, but attorneys in CA have been warning owners about Prong B exposure because:Real estate ownership is considered a businessRepairs are part of operating that businessRoutine maintenance work looks like an “employee relationship” under AB5Most landlords don’t realize this until an EDD audit happens.5.

This depends on your risk tolerance and confidence in defending the cost seg in an audit.2.