"It's great!" enthused Linda Goold, tax counsel for the National Association of Realtors, when asked about the passive loss provision in the Revenue Act of 1992 (H.R. 11). "It gets us to the same place as the Andrews/ Thomas bill, but in a more efficient way."
If the bill finally makes it into law, it will mark the successful completion of a six-year struggle by real estate investors to get relief from the strict provisions of the Tax Reform Act of 1986, which essentially barred deductions for losses from real estate even if the taxpayer was actively involved in the business.
The bill (H.R. 1414), cosponsored by Reps. Michael A. Andrews, D-Texas, and William M. Thomas, R-Calif., would have permitted loss deductions for real estate investors who both spent at least 50% of their time working in real property operations and 500 hours during the taxable year.
Earlier this year, the House passed a version of the Andrews/Thomas bill, but the Senate passed a substantially different version. President Bush had proposed his own version. None of the proposals was acceptable to the real estate industry. Bush later vetoed a tax bill that contained a compromise version the real estate industry also disliked (see The Mortgage Marketplace, March 30, page 4).
The H.R. 11 version applies the material participation test contained in present law. It also defines real estate operations broadly to include development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage trade of business.
Goold said the industry received major assistance from the staff of Sen. Bob Packwood, R-ore., ranking minority member on the Senate Finance Committee.
The provision will cost $2.54 billion in the period 1992-97 but another provision that would recapture real estate depreciation deductions would raise an estimated $3.1 billion. The change would become effective for taxable years ending after last Dec. 31.