Establishing REP status for purely NNN properties?

Question

Has anyone successfully filed an tax return as a Real Estate Professional while managing a purely NNN portfolio?

If so, what activities did you document to prove that you materially participated in active managememt?

Ronald Rohde · Answer

Can add in legal review, consulting with banks and other financing related tasks. You're essentially buying tenant credit risk, so my clients spend a lot of time underwriting the tenant, industry, etc.

Yonah Weiss · Answer

@Ravinder Mahal, I'll wait for some CPAs to chime in to verify, but there are a few things to consider.

If these are reimbursements of tax and insurance, your time spent managing the books, and dealing with that. Some other activities, especially if you own a number of properties would be, sourcing deals, process of acquiring, banking, writing checks, and other asset management activities.

Jonathan R McLaughlin · Answer

@Ravinder Mahal careful! REP status does not guarantee treatment of rental income/loss as non-passive, to get that you need to document 500 hours of property management. Other wrinkles as well to what qualifies.

You have to make sure you aggregate properties.

Managing the manager(s) is ok as part of the hours, but if that’s all you are doing you are at risk.

We actually sought out smaller properties to hands on manage to balance out  a large triple net purchase. One of the benefits was clearly qualifying as both REP (750 hours) and active manager (500 hours). The smaller properties had a positive return but the tax advantages for the given year turned it into a home run.

Amit M. · Answer

Look this up online too. Last I hear there was some (I believe it was from the IRS itself) determination that NNN properties alone DO NOT qualify as activities for RE professional status.

That, and the upcoming CA ballot measure of possibility of loosing prop 13 property tax freeze status on CA commercial properties, are definitely putting a dent in desirability of owning CA NNN commercial :(

Joel Owens · Answer

Make sure you have a good CPA who tells you what to document so you could hopefully stand up to an Audit.

Establishing REP status for purely NNN properties?

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