2026 NNN tax guide
A net lease purchase may generate a 100% first-year federal deduction for eligible shorter-life components—not for land or the entire 39-year building. Cost segregation, asset ownership, acquisition timing, and taxpayer limitations determine the real result.
Direct answer
Yes—on qualifying components. The NNN lease structure does not itself create or prevent the deduction. The decisive questions are what the buyer owns, each asset’s tax recovery period, when it was acquired and placed in service, and whether the taxpayer can currently use the resulting loss.
Current federal rule
The 100% percentage is only the starting point. A correct analysis separates the statutory rate from the basis that actually qualifies and the deduction the taxpayer can use.
Acquisition timing
After Jan. 19, 2025
Current federal law generally restores 100% for qualified property acquired after this date. Binding-contract and transition rules can control.
Recovery period
20 years or less
Qualified property generally must have an applicable recovery period of 20 years or less, unless another qualifying category applies.
Excluded basis
Land + shell
Land is not depreciable. A nonresidential building is generally recovered over 39 years.
Typical evidence
Cost segregation
A quality study supports component identification, tax classification, valuation, and fixed-asset schedules.
Purchase mechanics
Start with total tax basis, not the listing price alone. Acquisition costs and the purchase-price allocation must be reconciled before shorter-life components are identified.
1. Allocate
Support land value and identify separately transferred personal property. Purchase agreements and tax reporting should be consistent.
2. Reclassify
A cost segregation analysis separates eligible components from the 39-year building based on function and tax authority.
3. Apply
Apply the correct bonus percentage, then test passive-loss, basis, at-risk, interest, state, and other taxpayer-level limitations.
NNN property types
Asset mix matters more than the property label. Operationally intensive sites often contain more equipment and site improvements, but every allocation must be supported.
| Net lease asset | Potential | Common components | Underwriting caution |
|---|---|---|---|
| Fuel station / convenience store | Often high | Dispensers, canopies, signage, paving, site lighting, equipment | Test retail motor-fuels facility rules; do not assume 15-year status. |
| Car wash | Often high | Wash equipment, conveyors, reclaim systems, vacuums, paving | Separate equipment and land improvements from the building shell. |
| Quick-service restaurant | Moderate to high | Kitchen equipment, counters, décor, drive-thru and site improvements | Confirm whether fixtures are landlord- or tenant-owned. |
| Auto service | Moderate to high | Lifts, compressors, specialty electrical, equipment and paving | Ownership and removal characteristics affect classification. |
| Pharmacy / dollar store | Moderate | Millwork, flooring, security, signage and land improvements | Generic building systems generally remain 39-year property. |
| Medical / dental | Fact specific | Specialized plumbing, electrical, cabinetry and equipment | Tenant-owned clinical equipment is not the landlord’s depreciable basis. |
High-component properties
These categories can produce large accelerated deductions because equipment and site improvements may represent a meaningful share of basis. They also require unusually careful classification and environmental, ownership, and valuation diligence.
Dispensers, underground systems, canopies, signage, food-service equipment, paving, and lighting may fall into shorter tax lives. A qualifying retail motor-fuels outlet may receive special 15-year treatment only if its statutory tests are met. Document fuel-related gross receipts, floor-space use, ownership, and placed-in-service dates.
Conveyors, arches, pumps, reclaim systems, vacuums, dryers, controls, specialized utilities, and paving may create substantial shorter-life basis. Separate removable operational equipment and land improvements from structural building components; do not market the entire purchase as automatically deductible.
Lease-specific issue
In a net lease, the party using an asset may not be the party entitled to depreciate it. Tax basis follows who paid, capitalized, and owns the property—not who benefits operationally.
Landlord-funded
Review ownership
A landlord may depreciate improvements it owns and capitalizes, subject to classification and placed-in-service rules.
Tenant-funded
No landlord basis
A landlord generally cannot depreciate costs paid and owned by the tenant merely because they are installed at the property.
Allowance
Trace the money
Tenant allowances, reimbursements, lease incentives, and end-of-term ownership require document-specific tax analysis.
Worked NNN example
This illustration shows why eligible basis and cash-tax impact are different numbers. It is not a forecast for a specific investor.
Illustrative basis analysis
$3,000,000 price − $600,000 land = $2,400,000 depreciable basis
Assume an engineering-based study identifies $720,000 of eligible 5-, 7-, and 15-year components. At a 100% bonus rate, the potential first-year bonus deduction is $720,000 before elections and taxpayer limitations. The remaining $1,680,000 follows its applicable recovery periods.
At an illustrative 35% combined marginal rate, a fully usable $720,000 deduction could defer about $252,000 of current tax. That is timing value—not a $720,000 credit—and ignores passive-loss limits, state decoupling, financing, future depreciation, recapture, and changes in tax rates.
Illustrative tax deferral: $720,000 × 35% = $252,000
Before closing
The strongest tax file begins before acquisition. Coordinate the purchase agreement, property diligence, cost-segregation scope, and tax model rather than reconstructing the facts later.
Exit underwriting
Bonus depreciation accelerates deductions and reduces adjusted basis. A sale can therefore produce more taxable gain and ordinary-income recapture, especially for Section 1245 components.
Maintain asset-level basis and depreciation so dispositions, replacements, and sale allocations can be reported consistently.
Compare present tax deferral with future recapture, sale timing, expected tax rates, and the time value of money.
A real-property exchange may defer eligible gain, but personal-property recapture and allocation issues can remain. Read the 1031 exchange guide.
Taxpayer limitations
Property-level eligibility does not guarantee a current tax benefit. The owner’s facts determine whether a loss offsets other income now, carries forward, or is limited.
Clear answers
Straightforward answers to the questions investors ask most often.
Eligible components of a net lease property can qualify, but land and the entire 39-year building generally do not. A cost segregation study may identify 5-, 7-, and 15-year assets that are eligible under the current federal rules. Taxpayer-level limitations and elections can change the usable deduction.
Current federal law generally allows 100% bonus depreciation for qualified property acquired after January 19, 2025. Acquisition timing, written binding contracts, placed-in-service dates, elections, and transition rules matter, so an investor should confirm the applicable percentage with a tax adviser.
Not in full. The purchase price must first be allocated among land, the building, and other assets. Land is not depreciable, the structural building is generally 39-year property, and qualifying shorter-life components may be eligible for accelerated depreciation.
Many fuel and convenience-store acquisitions contain substantial equipment and land improvements that may have shorter recovery periods. Certain qualifying retail motor-fuels facilities may also receive 15-year treatment, but the statutory gross-receipts and floor-space tests must be documented rather than assumed from the property label.
A car wash can contain significant equipment, specialized systems, paving, and other shorter-life components. Eligibility depends on ownership, tax classification, acquisition and placed-in-service dates, and a defensible allocation or cost segregation analysis; the entire property is not automatically deductible.
Usually the taxpayer that owns and capitalizes the improvement claims depreciation. If a tenant pays for and owns an improvement, the landlord generally cannot depreciate that tenant-owned basis. Lease language, allowances, reimbursements, and ownership at lease end should be reviewed carefully.
Yes. Eligible used property can qualify when it is new to the buyer and satisfies the prior-use, related-party, acquisition, and qualified-property rules. A newly purchased building is not disqualified merely because it was previously occupied.
The tax law does not use a blanket rule that every claim requires a formal study, but a quality engineering-based study is the common way to identify, value, and document shorter-life components in an acquired commercial property. The level of support should be proportionate to the deduction and audit risk.
Accelerated depreciation reduces basis and can create Section 1245 ordinary-income recapture or other depreciation-related gain when assets are sold. The result depends on each asset and transaction. A 1031 exchange does not automatically defer recapture on personal-property components.
Potentially. Section 1031 addresses gain deferral on qualifying real property, while bonus depreciation accelerates deductions for eligible replacement-property components. Carryover basis, additional basis, boot, asset classification, and recapture must be coordinated before closing.
No. States may conform, decouple, or require an addition followed by later deductions. Federal and state basis schedules should be modeled separately for the property and ownership entity.
Primary sources
Use primary authority for the rule, then have a qualified professional apply it to the transaction’s documents and facts.
How to Depreciate Property, including MACRS and special depreciation allowance guidance.
IRS examination framework and background for cost segregation studies.
Statutory depreciation system and bonus depreciation provisions.
Passive activity and at-risk rules that may limit current use of a deduction.
Bonus depreciation can improve tax timing, but tenant quality, lease obligations, location, purchase basis, financing, and residual value still drive the investment.
