More importantly, however, a taxpayer can't use the safe harbor for any property rented on a triple net basis.
What is a triple net lease? It's any lease where the landlord passes on the responsibility for paying real estate taxes, insurance, and maintenance to the tenant. And over the past century, while the courts have showed leniency in allowing even relatively hands-off rentals to be treated as a Section 162 trade or business, the judicial precedent is not on the side of property owners who rent via triple net leases. In those situations, because the building owner bears little of the responsibility of operating the building, the IRS has viewed the ownership of real estate rented on a triple-net basis as akin to holding stock, and it has treated the property as an investment rather than a Section 162 trade or business (See Neill and Rev. Rul. 73-522). Now, with those triple net landlords also shut out of the new safe harbor, the final regulations create a conundrum.
