319. 3 Tax Scams to Watch Out for in 2025 (And 2 Risky Strategies to Avoid)
Apr 2, 2025
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Dive deep into the world of tax scams targeting real estate investors. Learn why equipment leasing deals often miss the mark and how solar tax credits can be misrepresented. Discover the risks behind inflated art donation deductions and why they should raise red flags. Thomas and Ryan also discuss two high-risk strategies—discounted IRA rollovers and deferred sales trusts—that, while not outright scams, require extreme caution. Equip yourself with knowledge to protect your wealth from potential pitfalls!
Investors should be wary of equipment leasing schemes promising non-passive losses, as they often result in costly tax misunderstandings due to passive income classifications.
While art donations can yield tax deductions, inflated appraisals pose significant risks, necessitating adherence to IRS guidelines to avoid penalties.
Deep dives
Understanding Equipment Leasing Scams
Equipment leasing can lead to significant tax misunderstandings, especially when promoted as a way to generate non-passive losses through depreciation. Usually, investors purchase equipment and lease it to companies, expecting to offset non-passive income or W-2 earnings with the purported losses. However, these losses are often passive, meaning they cannot effectively reduce taxable income from active business earnings. This highlights the importance of material participation in real estate investments; if an investor does not material participate, they should be cautious of claims suggesting otherwise, as such scenarios often turn out to be scams.
Navigating Solar Tax Credit Misconceptions
While investing in solar panels and receiving tax credits is legitimate, the promotion of these investments often misleads investors regarding their classification as passive income. Many offers suggest that one can achieve non-passive losses through these investments, despite the reality that an investor typically does not materially participate in the operational processes of solar farms. The challenge arises when investors assume they can leverage tax credits inappropriately without being actively involved in their investment activities. Consequently, believing these claims can put investors at risk, leading them into potentially fraudulent schemes masked as legitimate tax advantages.
Risks Associated with Art Donation Valuations
Art donations can provide significant tax deductions, but they often become problematic due to inflated appraisals that do not align with actual market values. For example, purchasing an artwork for $100,000 and then having it reappraised at $500,000 can be flagged during an IRS audit, especially if the valuations seem unreasonable. The IRS has increased scrutiny on art donations due to the frequency of fraudulent activities associated with overvalued donations, often resulting in hefty penalties. Therefore, individuals considering such donations should ensure that valuations are legitimate and fully compliant with IRS guidelines to avoid severe tax repercussions.
Analyzing Questionable Tax Strategies
Two notable questionable strategies outlined include discounted IRA rollovers and deferred sales trusts, which possess inherent risks that investors should approach with caution. Discounted IRA rollovers can involve questionable valuations that potentially misrepresent the true worth of investments when transitioning funds, which may lead to scrutiny from the IRS on taxable events. Similarly, deferred sales trusts allow for the spreading of capital gains taxes but can potentially expose investors to risks related to control and management of trust assets. Both strategies necessitate a thorough understanding and consultation with qualified tax advisors to fully address potential pitfalls and ensure full compliance with tax regulations.
In this episode, Thomas and Ryan break down some of the most common tax scams and questionable strategies being promoted to real estate investors—and how to avoid falling into these costly traps.
This episode explores:
- Why equipment leasing deals promising non-passive losses are almost always too good to be true.
- How solar tax credits are being misrepresented and what the IRS has to say about it.
- The truth behind inflated art donation deductions and the risks they carry.
- Two high-risk strategies—discounted IRA rollovers and deferred sales trusts—that aren’t scams, but require extreme caution.
If you're serious about protecting your wealth and staying out of IRS crosshairs, this is one episode you won’t want to miss.
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The Tax Smart Real Estate Investors podcast is for general information purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Information on the podcast may not constitute the most up-to-date legal or other information. No reader, user, or listener of this podcast should act or refrain from acting on the basis of information on this podcast without first seeking legal and tax advice from counsel in the relevant jurisdiction. Only your individual attorney and tax advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this podcast or any of the links or resources contained or mentioned within the podcast show and show notes do not create a relationship between the reader, user, or listener and podcast hosts, contributors, or guests.
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