Hi again. To Q & A for more...
Thanks for the review. In all honesty, I do not understand the example you provided about the Dollar store. (By the way, not all dollar stores are located in lower income areas.) The model for one of the store chains is for investors to do buildout of property, and ten year boiler plate leases are provided as a base for negotiations. The problem for investors comes at the end of the first ten years, when the economics of the area don't support the store, so it leaves, and the investor is left with twenty years to service a mortgage and needs to re-rent.Currently, I do the bookkeeping for an investor who leases all of his properties using net leases. The investor does nothing for his tenants except provide the rental properties. He does not perform any end of lease remodeling. In fact, he does nothing to accommodate the tenants. However, if the roof needed to be replaced or there were major plumbing problems which would interfere with leasing the property, he would take care of them. Otherwise, the tenants lease the property "as is". Therefore, I guess my examples would be somewhat "extreme". I agree. The roof thing would be a tough one to have to take on as a tenant. First of all, am I correct in thinking that a net lease can be used for a residential rental property? Yes, and it's often done that way informally. People renting homes are often responsible for cutting grass, taking out trash, and I have seen residential leases that required things like payment of rent to the bank for the mortgage, requirement that liability insurance be obtained by tenant, etc.Next, I believe you are saying that not all net leases have to be so extreme. The landlord may accommodate the tenant in some things and yet require the tenant to be responsible for some of the landlord's expenses. What I do not understand is the accruals you referenced. Do you mean things like carpeting or temporary walls? Please explain. Yes, I do. These assets with a depreciable life less than the lease life could be depreciable faster than the rent, so a tax advantage can be obtained.
Now, to part 2:
Since they are part of the rental cost, they will have to be deductible. The real question is classification. I would claim them just as additional rent (let's say the rent was $1,500, and property taxes were $340, and CAM an extra $55, I could lump it all to rent for $1,895. Easiest, cleanest. And, it wakes a client up when they see just how much the net lease costs them. Or, split it out and call the other items 'share of property taxes as part of lease' or other such label. Just don't call it property taxes, since you can't claim property taxes as a deduction for property you don't own. Thanks again. PDtax