Triple Net Lease Tax Deductions for 2023

commercial properties in big city

Triple-net lease investors enjoy many powerful benefits. From not having to pay certain insurance, utilities, and maintenance to working with a reputable, commercially-backed brand, a triple net property owner can typically expect strong, predictable cash flow.

But did you know triple net leases also come with critical tax advantages? If you’re an educated commercial real estate investor looking for a stable, long-term triple-net lease (NNN) or would like to maximize the triple-net lease you already have, now’s the time to act.

Make the most of your triple-net lease in 2023 and reap the top tax benefits available. Learn how to take tax deductions based on your triple-net lease agreements today.

Why Triple Net Leases Are Perfect for Commercial Property

Triple net lease investments provide dependable, recession-proof cash flow while allowing the investor to take a truly hands-off approach. In addition to producing monthly rent income, a NNN investment property is also far less financially burdensome than a property under a traditional lease.

Although the triple net lease property can be vulnerable to vacancies and tenant credit troubles, the advantages of a triple net lease can more than compensate with strong commercially-backed tenants. Reputable brand-name property values are often very stable, with reliable, long-term income.

This makes NNN commercial leases a vital part of any diversified investment portfolio. To fully capitalize on triple-net leases, contact a premier buyer’s broker you can trust. NNN Deal Finder has helped investors achieve financial freedom through commercial triple net investments, and can help you find the perfect investment opportunity for your goals too. Get in touch today to discover how we can help you to the next level in your financial journey. 

What the Tenants are Responsible for Under NNN Commercial Leases

Aside from collecting the base rent, a NNN commercial property owner is typically exempt from paying building insurance costs, property taxes, maintenance expenses, and sometimes other ancillary costs associated with their commercial real estate.

Depending on the triple net lease, the tenant is responsible for the majority of business expenses and operating expenses related to the property.

NNN investment property owners may also capitalize on significant tax advantages under a commercial lease. There is no better time than 2023 to make NNN Lease properties part of a successful investment strategy.

Common Tax Incentives Under a Triple Net Lease (NNN)

The tax benefit of a triple net lease property can be broken into three main categories: state income tax, cost segregation depreciation, and 1031 deferrals on capital gains taxes. Currently, the following states do not have income taxes: Florida, Nevada, South Dakota, Alaska, Texas, Tennessee, Washington, and Wyoming.

Cost segregation depreciation and 1031 deferrals also help to reduce tax liabilities on commercial real estate. These mechanisms save money and open up capital for new investment opportunities.

Just be sure to consult a tax advisor so that you abide by the Internal Revenue Code. As the investment property owner, you may have to cover other expenses, similar to those under a traditional gross lease.

What Does a Landlord Pay for Under a Triple Net Lease Agreement?

Even though the tenant in a NNN property is responsible for most of the additional costs, the property owner does have to cover certain types of those expense categories. Typically, the landlord pays for specific expenses related to (1) maintenance, (2) insurance premiums, and (3) mortgages.

big commercial build

For questions about costs associated with reputable NNN lease properties, contact an expert in NNN lease structure.

(1) Maintenance Costs Under Triple Net Leases

While daily operating expenses are usually covered by the tenant, some triple net leases tend to require that the owner pays for structural damages. Large repairs and utility bills usually include fixing walls and roofs, connecting plumbing and electricity, and other substantial upgrades or capital expenditures.

(2) Insurance Costs Under NNN Leases

Under a triple-net lease agreement, the tenant is responsible for most insurance deductibles and claims. Even so, owners of investment properties must be listed on all insurance policies and may have to cover certain insurance fees.

Compared to a gross lease, however, a net net net lease will usually assign most insurance costs to the tenant. A NNN lease investor should consult an investment specialist to know precisely what the tenant pays.

(3) Property Mortgages Under Triple Net Leases

Unless you paid for your investment property entirely on your own, you had to take out financing. As a triple-net lease investor, you’ll have to cover financing fees and monthly mortgage payments on your real estate, even when the lease period ends. Fortunately, the base rent amounts and cost exemptions under NNN leases often offset periods of vacancy.

Of course, these costs differ based on the commercial lease type and the stipulations of the commercial lease. Net net net leases are substantially different from double net leases and single net leases.

Comparing The Single Net Lease, Double Net Lease, and Triple Net Lease

Under a traditional gross lease, the tenant pays the base rent while the landlord or property investor handles expenses such as real estate taxes, property taxes insurance, mortgages, maintenance expenditures, and more.

The lease structure of the NNN lease, NN lease, and N lease is different.

When the tenant signs a net lease, he or she is usually agreeing to a reduced base rent but greater expenses and responsibilities. Similarly, the property owner is agreeing to receive smaller rent checks in exchange for reduced landlord duties, and significantly fewer ongoing expenses. This means that the investment is passive and less costly over the mid to long-term

There are several main differences between a NNN lease and other net leases.

Specifics of the NNN Lease Agreement

The least risky of net leases, the NNN lease allows the owner to transfer maintenance costs, insurance premiums, and property taxes to the tenant. In exchange, the tenant enjoys a lower monthly rent.

Oftentimes, property taxes and maintenance costs exceed tenant expectations. If owners are worried about tenants escaping the lease, they can impose what is called a bondable NNN lease. This prevents the lease from being prematurely terminated.

Specifics of the Double Net Lease Agreement

Like a NNN lease, the NN lease has a lower rent amount because of the expenses covered by the tenant. In this case, the tenant pays property taxes and insurance premiums, while the owner pays for the maintenance. The tenant’s insurance and property tax payments are usually directed to the property owner who then forwards them to the municipality and insurance company.

Specifics of the Single Net Lease Agreement

The single net lease is fairly uncommon among tenants and landlords. Under this agreement, the tenant is responsible for paying property taxes, and the property owner handles insurance premiums, maintenance costs, utilities, and repairs.

Due to the risks the landlord takes on, the N lease is the least preferred among net leases.

Net Leases Vs Gross Leases

The net lease is similar to a standard gross lease. Under a so-called modified gross lease, the tenant covers the base rent when the lease period begins. Gradually, the tenant pays for other property costs based on a given proportion.

This modified gross lease usually applies to commercial properties with multiple tenants and can be thought of as the middle ground between a gross lease and a net lease. There are even ground leases where the tenant pays the property owner for developing land while assuming the expenses of a building owner.

mcdonalds' road signs

Regardless of the net lease type, certain tax advantages are enjoyed.

Making NNN Lease Investments in ZERO Income Tax States

States without income taxes routinely rank among the top areas for job growth, population increases, and GDP value.

The following zero-income-tax states also have no capital gains taxes:

  • Washington
  • Alaska
  • South Dakota
  • Wyoming
  • Tennessee
  • Florida
  • Nevada
  • Texas

If you’re looking to invest in reputable, high-income commercial assets like 7-Eleven, Walgreens, Chick-fil-A, CVS, or Starbucks, you should definitely consider these locations. This income tax advantage is especially important, considering that property owners with triple net leases do not generally qualify for the qualified business income deduction.

Using Cost Segregation Depreciation for NNN Properties

By using cost segregation depreciation (CSD) tax law, you can significantly increase the rate of depreciation. In other words, you can depreciate expenses in very short periods, enjoying additional capital and improved cash flow.

Many property improvements such as HVAC and landscaping can be depreciated in just years, instead of the standard 39 years of commercial property depreciation. In some cases, you may be able to fully write off these expenses within the year.

Contact a seasoned depreciation specialist about reclassifying costs.

Using a 1031 Exchange for NNN Properties

Named after Section 1031 of the IRS Code, the 1031 exchange is a mechanism for ‘relinquishing’ and ‘replacing’ investment properties. In other words, you “exchange” profits (i.e., capital gains) by selling one commercial property and then injecting those profits into another investment property.

Just be sure you act in a timely manner. You have 180 days to close on the replacement property, and if you’re unprepared, these six months can go quickly. To defer all of your capital gains taxes, you must invest all of your sale proceeds into the new property.

The replacement property must also have an equal or greater value than the relinquished property. You can typically exchange vastly different properties as long as they are both used for investment or business purposes. For example, you may exchange a general store for a restaurant, a motel for a movie theater, etc.

The opportunities are endless!

Find The Best NNN Property Deal Today

If you’re a real estate investor, the time to take full advantage of triple net lease tax deductions is now. 2023 is a great year to find that perfect low-risk, high-return commercial investment. At NNN Deal Finder, we use our vast networks and insider insights to connect investors with the most established brand-name tenants.

Through NNN properties, you can capitalize on stable, long-term cash flow across properties and locations. Invest in reputable brands like Starbucks, Wawa, 7-Eleven, Pizza Hut, CVS, AutoZone, and more.

With NNN Deal Finder, it’s easy to quickly locate a commercial property with established income-producing potential and make the most of triple net lease tax deductions. All it takes is four easy steps to secure your investment.

First, contact us for a custom property list. Then, consult us about your goals, needs, and budget. Afterward, receive your hand picked investment opportunities. Finally, lock in your NNN investment and start making the mailbox money of your dreams!


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