I'm with you, the math doesn't track on this.  Even if we assume the land value is minor we're looking at 25-30% of the 39-year life @ straight-line, let's call it $90K maybe?  So that's a $40K "gain" via recapture of allowable depreciation, I can't see how we get anywhere close to $134K.  I'd be curious to see what set of facts the auditor is using.

I'm no 3115 expert, but isn't it too late to change accounting methods for 2016?  I think this deduction may be lost.  I file this under "cost of NOT having your tax return prepared by a professional."

I can see "paid some guys in front of the Home Depot in cash" being disallowed but if there are signed receipts and a 1099 issued I wouldn't back down on that one.  Can you track the cash back to ATM withdraws?  Maybe get a signed affidavit from the contractor to appease the auditor?  And run through the employee vs. contractor checklist while you're at it.

Rick