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January 30, 2019

Reflections on new tax code regulations for NNN leases

As attractive as the new 20% deduction of the taxpayer’s qualified business income from each of a taxpayer’s qualified trades or businesses appears to be, meeting the safe harbor requirements to assure that a real estate enterprise will be treated as a trade or business may be difficult.   In particular, the IRS Notice states that real estate rented or leased under a triple net lease is not eligible for the safe harbor.

Currently the IRS guidance regarding requirements for a rental real estate enterprise to be treated as a trade or business requires i) maintenance of separate books and records for each rental real estate enterprise, ii) 250 or more hours of rental services are performed per year, and iii) maintenance of contemporaneous records re hours of services performed, description of services performed, dates on which such services were performed, and who performed the services.

It is important to talk with your tax advisor but should the specific triple net lease exclusion be modified and only the general safe harbor requirements apply it may be that contracting with NAI Elliott for management services will render your triple net property eligible for the safe harbor.

To read the full Forbes article, click here.