NNN Tax Deductions — What Owners Actually Write Off

NNN ownership’s expense column is thin by design — so its deductions concentrate in a few large items doing heavy work. The full ownership tax picture sits in the benefits overview; this is the deduction ledger specifically.

The big two

Depreciation: the improvement allocation of your purchase deducts over 39 years (commercial) — a $1.4M deal with $1M of improvements yields ~$25,600 annually against rent, and cost segregation can accelerate site-work and component slices meaningfully (worth a study above roughly $1M of improvements; VERIFY current bonus-depreciation percentages, which change the math year to year). Land never depreciates — making the closing-time land/improvement allocation a negotiable item with decades of consequences. Interest: fully deductible against rental income on acquisition debt (the detailed rules); on leveraged deals it’s the largest single line.

The lean middle

On absolute-net paper, tenants pay the operating stack directly — so your deductible expenses are the ownership residue: professional fees (CPA, legal, the broker side is listing-paid), entity costs, travel for inspections, insurance you carry contingently, and any landlord-retained items on NN structures (reserves for that roof are not deductible until spent — but the spending, when capital, depreciates rather than deducts; your preparer draws the repair-versus-improvement line).

The modifiers

QBI: the 20% pass-through deduction reaches many NNN activities, but triple-net rentals sit in contested safe-harbor territory (Rev. Proc. 2019-38’s hour requirements were built for active rentals) — treatment varies by facts and preparer posture; get a position, in writing. Passive-loss caging: paper losses from depreciation may suspend for high earners until sale — banked, not lost (the release mechanics). Recapture’s shadow: every depreciation dollar deducts now and waits at 25% later — deferrable indefinitely through exchanges, which is the system working as designed.