Clinton backs passive-loss change.

As expected, the Clinton administration revealed that its economic plan calls for long-awaited changes in the passive-loss rules and other measures designed to encourage investment in real estate.

The president also supports permanently extending the low-income housingtax credit, the mortgage revenue bonds, a stabilizing of the gains tax rate and expanding some of the investment possibilities for pension funds.

In the 1986 tax reform, Congress deemed rental real estate "passive" and did not permit real estate investors andpprofessionals to offset income with losses from rental activity.

The rel estate industry had thought they were going to get reform in the passive-loss rules and other measures last year when Congress passed bill H.R. 11. President Bush, however, vetoed those hopes.

Now, it seems President Clinton favors someof the measures contained in H. R. 11, but not all of them.

Clinton'splan proposes:

*Allow those who are involved in real estate trades of businesses or those who materially participate in rental real estate to offset rental losses against other real estate income.

*Broaden pension fund investment in real estate by modifying rules relating to debt-financed real estate permitting in some instances seller financing, saleleasebacks and participating loans

*Extend the non residential real estate depreciation from 31.5 years to 36 years

Phil Wiesner, national director of Real Estate Tax Services, KPMG Peat Marwick, said the Clinton package resembles the more restrictive Senate version of H. R. 11. The conference proposal, which was sent to former President Bush' desk last year, he said was a more "generous" proposal.

In the latter version, those involved in real estate would be allowed to use losses from rental real estate to offset all bet business income not just that which is derived from real estate.

In addition, Clinton does not include real estate investment trusts (REITs) when he suggest further avenues for pension fund investment.

H.R. 11 also contained a provision on debt restructuring. Individuals who have some debt forgiven by a lender would be able to defer the recognition of income until that property was sold to a third party.

In H.R. 11, however, the depreciation for non-residential property would have been extended to 40 years rather than 36.

"They truly have a less favorable package than H.R. 11," said Wiesner.

Wiesner said these proposals would probably not become effective until Dec. 31, 1993. For many, he said, it will be too late.

"The passive-loss rules will have worked their full damage for seven years," he said. "And a lot of people have used up passive loss credits to set off indebtedness income."

Cary Brazeman, spokesperson for the National Realty Committee, said they are pleased Clinton has advanced these ideas but they do not believe the inequity of the 186 tax reform has been cured.

"We continue to believe that only when you allow these rental losses to be deducted against all business income will people in real estate business be treated equally as all other people in business, but clearly this is a positive step, he said.

The Associated Builders and Owners of Greater New York will be traveling to Washington on March 23 to deliver facts and statistics to the House and Senate on the need to change the passive loss rules. They will try to demonstrate, said, ABO President Jerome Belson how reforming these rules can help bring in "idle capital sitting on the sidelines."

Mixed Reviews

There were also mixed reviews in the industry on Clinton's other proposals which include $30 billion in short-term spending on infrastructure projects and permanently extending the low-income housing tax credit and mortgage revenue bonds.

Louis Coletti, president of the New York Building Congress, thinks Clinton has not gone far enough in committing funds to restore the country's "crumbling infrastructure."

Coletti disagrees with those who say that infrastructure projects will not provide any short-term stimulus for the nation. Ready for the president's signing right now, he said, are 7,000 projects from the nation's mayors that are ready to begin tomorrow.

While Coletti speaks for an industry that has been devastated by job loss, he believes infrastructure projects are not only valuable for creating employment. They are, he said, vital to the growth of "industrial" society and triggers for further private-sector investment.

Ruben Klein, president of the Bronx Realty Advisory Board, said Clinton's proposed energy tax is anotherr detriment to the survivability of affordable housing. It will be more than a year, he said, before owners can apply to the Rent Guidelines Board for some compensation.