Can a NNN lease be structured so that the prop. tax payment is NOT taxable income to property owner?

In California, can a NNN lease be structured so that the property tax payment is made directly to the county and that property tax payment is NOT considered taxable income to the property owner?
In Leasing Property - Asked by Michael T. - Mar 12, 2014
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Answer(s)

Gary A.
Broker/Agent
Beverly Hills, CA

The payment of property tax by a tenant is considered part of his rent payment to the landlord, and would be considered for income tax purposes as rent income to the landlord. I don't see any way that the payment of taxes by a tenant on behalf of a property owner is not income to the property owner. However the payment of the tax is a deduction to the landlord, so there is a net effect. That is, if the tax is $20,000. The tenant pays the landlord $20,000 (or directly pays the tax), which is a rent deduction to the tenant and rent income to the landlord. The landlord pays the taxes (or has them paid on his behalf) which gives rise to a deduction of $20,000 to the landlord. The net effect is that the rent income which covers the taxes is offset by the deduction for the payment of the tax and there is no net taxable income to the owner for that portion of the rent.

Mar 12, 2014
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Jeff V.
Broker/Agent
Shawnee, KS

In a true NNN or absolute NET lease the property tax is paid directly to the county by the tenant. If the lease clearly states that the tenant is responsible for the payment of all property taxes, then the tax bill wouldn't even need to be on the owner's books. The property may be in the owner's name, but the tax bill can be sent directly to the tenant.

Mar 12, 2014
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Jacqui N.
Appraiser
Northboro, MA

Regarding Jeff's answer - The comment regarding the tax bill being sent to the tenant may not be true in different jurisdictions. Regardless of what the lease says, the property owner is responsible for the taxes.

Mar 14, 2014
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Barry F.
Broker/Agent
Austin, TX

It would seem that if the jurisdiction is going to consider the tenant's payment as income/revenue, it would also seem logical for it to be an expense when it's paid out and have 0 effect on net income, but I agree with Jacqui that those who make up the rules decide what is and isn't.

Mar 17, 2014
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Patricia L.
Owner/Investor
South Dennis, MA

I'm in NY but can tell you that here the taxes are billed to the property owner and I send my tenant a copy of the tax bill for him to pay the taxes for the Triple Net Lease. As for the tax income to the property owner, it is a deduction on our taxes and not considered income but rather a "wash". Hope this helps...

Mar 18, 2014
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Ricardo R.
Developer
Mcallen, TX

The NNN portion of the rent paid is 100% deductible by the tenant. Regardless of who pays the property taxes, they are paid on behalf of the property owner, even in the case of an absolute NNN lease. The landowner receives the be financial benefit of a third party, in this case the tenant, paying his or her tax bill. It is taxable income under the federal tax code to the landlord/land owner because state property taxes are not a deductible expense by the property owner under federal tax law.

Mar 18, 2014
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W.C. W.
Owner/Investor
Quakertown, PA

Gary A is correct it has a net effect. Regardless of the lease structure, I receive my tax bills and pay them as a reimbursement from my tenants. The last thing you need is a tenant who does not pay the tax bill as contracted.

Mar 19, 2014
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