Two recent developments should push investors towards net lease properties. A new rule from the Small Business Jobs Act demands rental properties be treated as other businesses – requiring 1099 forms to be submitted to all service providers for costs $600.00 or over in one year. Furthermore, municipal bonds are on thin ice and many cities are posting billions in debt. These developments make both active real estate management and passive municipal bonds less attractive. Those who have invested in either should see net leases as a safe harbor.

The Small Business Jobs Act, like all bills, naturally contains things many would think anti-productive to its intended nature. Its provision requiring 1099’s lives up to this by issuing heavy amounts of busywork where none was required. Specifically:

The act subjects recipients of rental income from real estate to the same information-reporting requirements as taxpayers engaged in a trade or business. Thus, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income are required to provide an information return (typically, Form 1099-MISC, Miscellaneous Income) to the IRS and to the service provider. This provision will apply to payments made after Dec. 31, 2010, and will cover, for example, payments made to plumbers, painters or accountants in the course of earning the rental income.