Consolidated Tax Strategy & Due Diligence Guide

Master Due Diligence Checklist

Ask these four core questions to the sponsor of any tax-advantaged private placement before committing capital:

Loan & Risk Structure: Is the fund’s debt non-recourse (where your risk is capped strictly at the cash you put in), or does it require you to sign a personal guarantee?
Investor Role: Does the legal agreement grant you active co-management voting rights, or are you legally classified as a passive limited partner?
State Tax Impact: How does the fund handle state-level tax write-off rules for investors living in states that do not follow federal guidelines (like California, New York, or North Carolina)?
Exit Strategy: When the asset is sold in 3 to 7 years, will the sale trigger an immediate tax bill on past write-offs (recapture tax), or is there a built-in plan to roll the investment over tax-free?

Property Breakdown: What percentage of the investment goes toward equipment (pumps, vacuums, wash bays) versus the physical building and land?
15-Year Building Rule: Does the convenience store building qualify for accelerated 15-year tax write-offs by meeting IRS fuel revenue or floor-space rules?
Debt Risk: If the fund uses debt to increase tax write-offs on equipment, do you have to sign a personal guarantee, or is your financial risk limited to your cash investment?
Active Management Role: What specific operational decisions (such as approving vendor contracts or store layouts) will you help make to qualify for active tax treatment?
Tax-Free Exit: Does the fund plan to roll the properties into a Real Estate Investment Trust (REIT) upon sale to defer exit taxes?

Land vs. Equipment Split: How much capital goes toward non-deductible land versus deductible farm equipment, irrigation systems, and structures?
Active Farming Duties: What specific, non-investor decisions (such as negotiating crop sales or approving equipment purchases) are available for you to help manage?
Crop & Weather Protection: What insurance policies or crop protections are in place to safeguard you if you sign a personal guarantee on farm debt?
State Tax Adjustments: Does the fund use state Pass-Through Entity Tax (PTET) options to help lower state tax bills for out-of-state investors?
Hold Period: Is the farm intended to be sold in 3 to 5 years (which triggers tax on past write-offs), or held long-term as an estate asset?

Primary Goal: Is this investment structured to lower your current active W-2/salary taxes, or is it designed to provide tax-sheltered monthly cash flow?
Debt Limits: Is the equipment debt non-recourse (capping write-offs at the amount of cash you invested), or does it require a personal guarantee to unlock higher write-offs?
Management Tasks: What active fleet management tasks will you perform to satisfy active involvement rules without triggering IRS disqualifications?
State Tax Compliance: How are state tax add-backs handled for equipment moving across multiple states?
Equipment Sale Plan: What strategy is in place to minimize taxes when the container fleet is decommissioned or sold at the end of its lease?

Tax Code Usage: Are production expenses written off under special media production rules or under standard equipment write-off rules?
Loan Independence: Are the loan agreements structured independently so that lenders cannot seek repayment from your personal assets beyond the agreed terms?
Entity Roll-Up Risk: Does the project plan to merge into a larger corporation at completion, and is that transfer structured to avoid triggering unexpected tax gains?
Production Voting Rights: Do you hold formal voting rights over production budgets, distribution deals, or key contracts?
State Film Credits: How are state-level film production tax credits passed through to investors?

Passive Income Matching: How does the fund map incoming cash distributions against your existing carryover tax losses to ensure tax-sheltered income?
Investment Income Tax: How do the fund’s distributions impact the 3.8% Net Investment Income Tax threshold for high earners?
Unlocking Trapped Losses: If you sell your interest, is the transaction structured as a complete sale to an unrelated party so all past suspended losses are fully released?