Title

Passive Activities: An Explanation of Legislation and Real Estate Tax Planning Strategies

Document Type

Thesis

Publication Date

1995

Advisor

Paul Pladson

Abstract

Tax shelters were a sought-after investment in the early and mid 1980's and stil are today. Investments in real estate were commonly tax-shelter type investments. Real estate investments allowed investors to make capital investments up front and depreciate the property quickly, which resulted in losses that would reduce taxable income. However, the passive activity regulations activated through the Tax Reform Act of 1986 minimized the usefulness of these shelters and significantly affected the real estate industry. The passive laws were refined through regulations issued in 1988 and 1989, and the Revenue Reconciliation Act of 1993. The passive classification losses from passive activities to restricted the recognition of passive losses to taxpayers who had passive income. Even though passive activity legislation limited the real estate industry's options, tax planning strategies can neutralize the effects of the legislation.

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