TAXPAYER RELIEF IN SIGHT.The Taxpayer Relief Act of 1997 (the 1997 Act) (P.L. 105-34) was recently signed into law. Included are reductions in capital gains tax rates for individuals, changes in estate and gift tax laws, needed revisions in taxation of Real Estate Investment Trusts (REITs), revisions to the alternative minimum tax, and changes in taxation rules for partnerships. While the capital gains rate changes have been widely publicized pub·li·cize tr.v. pub·li·cized, pub·li·ciz·ing, pub·li·ciz·es To give publicity to. Adj. 1. publicized - made known; especially made widely known publicised , there are many other items in the 1997 Act that will affect owners of multifamily housing: * Several court decisions have determined that income created as a result of the lapse, cancellation, or abandonment of a contract right (such as an option to sell real estate) is ordinary income. The 1997 Act provides under Section 1234A that such income would be a capital gain provided the real estate is a capital asset; * The 1997 Act changed the net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. carryback and carryover rules from three years and 15 years respectively to two years and 20 years for taxable years Taxable year The 12-month period an individual uses to report income for income tax purposes. For most individuals, their tax year is the calendar year. beginning after August 5, 1997; * Taxpayers will no longer be able to defer recognition of income in an involuntary conversion in those instances where the replacement property is acquired from a related person; and * The ability of the Internal Revenue Service (IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. ) to assess penalties for understatement of tax has been significantly strengthened because taxpayers will now have to show a "more likely than not chance of success" for their tax reporting positions rather than current law that uses the standard of "substantial authority." CAPITAL GAINS The 1997 Act has a three-tiered rate schedule for capital gains, plus a special interim rate structure for the May 7 through July 29,1997, period. Because Congress did not include "ordering rules Ordering Rules The order in which Roth IRA assets are distributed. Assets are distributed from a Roth IRA in the following order: 1. IRA participant contributions 2. Taxable conversions 3. Non-taxable conversions 4. " for capital loss offsets, a joint letter from U.S. House of Representatives Ways and Means WAYS AND MEANS. In legislative assemblies there is usually appointed a committee whose duties are to inquire into, and propose to the house, the ways and means to be adopted to raise funds for the use of the government. This body is called the committee of ways and means. Committee Chairman Bill Archer (R-TX) and U.S. Senate Finance Committee Chairman William Roth (R-DE) was issued this fall to help clarify the issue. They said that they would offer and enact legislation at the earliest convenience specifying that: * If a long-term tax-rate group has a loss, that loss will be used first to off-set net gain for the highest long-term tax-rate group, then to offset the next highest long-term tax-rate group and so on; * A carryover of net long-term loss Long-term loss A loss on the sale of a capital asset held less than 12 months that can be used to offset a capital gain. from a prior year will be used first to offset net gain for the long-term highest tax-rate group and so on; and * A net loss from capital transactions involving holding periods of one year or less would be used to first offset net gain for the highest long-term tax-rate group and so on. DEPRECIATION RECAPTURE depreciation recapture See recapture of depreciation. Beginning May 7, 1997, any capital gain attributable to a Section 1250 depreciable depreciable Of, relating to, or being a long-term tangible asset that is subject to depreciation. asset will be taxed at the new lower capital gains tax rates after prior depreciation taken is taxed at a 25 percent "recapture recapture n. in income tax, the requirement that the taxpayer pay the amount of tax savings from past years due to accelerated depreciation or deferred capital gains upon sale of property. (See: income tax) RECAPTURE, war. " rate. Congressman Philip S. English (R-PA) recently introduced legislation (H.R. 2403) that would eliminate the 25 percent recapture rate, making all gain over adjusted basis eligible for the lower tax rates. ESTATE TAX Under the 1997 Act, a new estate tax exclusion, when combined with the unified credit unified credit A credit used against federal taxes due on estates and large gifts. Under current law, the unified credit is sufficient to offset taxes on values of approximately $1 million in estates and large gifts. , gives taxpayers the opportunity to exclude up to $1.3 million of the value (after discounts for lack of marketability, minority discounts, etc.) of closely held A phrase used to describe the ownership, management, and operation of a corporation by a small group of people. In a closely held corporation, the same people often act as shareholders, directors, and officers, and no outside investors exist. business interests from estate tax. This new exclusion is only available for qualifying businesses that comprise a substantial portion of a decedents' estate and meet other material participation and ownership requirements. The amount of the exclusion decreases as the effective exemption under the unified credit increases to maintain a consistent $1.3 million aggregate effective exclusion. There are certain eligibility requirements to qualify initially for the exclusion and to avoid recapture of the tax benefit obtained by use of the exclusion. Generally, a qualified business interest is an interest in a proprietorship or an interest in an entity if at least 50 percent of the entity is owned by the decedent An individual who has died. The term literally means "one who is dying," but it is commonly used in the law to denote one who has died, particularly someone who has recently passed away. and his family; 70 percent of the entity is owned by members of two families; or 90 percent of the entity is owned by members of three families. The value of a qualified business must be reduced by the value of assets that produce personal holding company income (PHCI), such as rents. However, the IRS has consistently ruled that certain rental income Noun 1. rental income - income received from rental properties income - the financial gain (earned or unearned) accruing over a given period of time (such as rents from apartments) is not PHCI. To qualify for the exclusion, the aggregate value of the decedent's qualified business interests that are passed to qualified heirs must exceed 50 percent of the decedent's adjusted gross estate, and the decedent or a member of the decedent's family must have owned and materially participated in the trade or business for at least five of the eight years preceding the date of the decedent's death. Material participation is determined on a facts and circumstances basis. The benefit of the exclusion must be recaptured if any of the following occurs within 10 years after the decedent's death and before the death of the qualified heir: * The material participation requirements described above are not met; * The qualified heir disposes of any portion of the qualified business interest; * The qualified heir loses U.S. citizenship; or * The principal place of business of a trade or business of the qualified business interest ceases to be located in the U.S. SECTION 8 DEBT FORGIVENESS Agreement has been reached in the Veterans Administration-Housing and Urban Development and Independent Agencies Appropriations bill that includes provisions to enact changes in the Section 8 program by marking rents to market and reducing project-based debt obligations commensurably com·men·su·ra·ble adj. 1. Measurable by a common standard. 2. Commensurate; proportionate. 3. Mathematics Exactly divisible by the same unit an integral number of times. Used of two quantities. . S. 513 attempts to resolve the question regarding the taxation of cancellation of indebtedness via a second mortgage for the amount forgiven. In testimony before the Subcommittee on Housing and Community Opportunity of the U.S. House of Representatives Committee on Banking and Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , Kenneth J. Kies, chief of staff of the Joint Committee on Taxation, reviewed the various reasons why special legislation may be needed to revise present tax law to avoid triggering a taxable event Taxable event An event or transaction that has a tax consequence, such as the sale of stock holding that is subject to capital gains taxes. as a result of this proposal. RENTAL ASSISTANCE PROGRAMS The IRS has issued final regulations (T.D. 8731) clarifying that certain types of federal rental assistance payments do not result in a reduction in the eligible basis of a low-income housing building. The applicable rental assistance programs are those under Section 8 and Section 9 of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Housing Act of 1937 and any other program designated by the IRS. The regulations became effective September 26, 1997. AVAILABLE UNIT RULE The IRS recently issued final regulations (T.D. 8732) on the treatment of a building's low-income housing units occupied by individuals with incomes exceeding 140 percent of the income limitation applicable under Section 42(g)(1) referred to as the available unit rule. The final regulations generally follow proposed regulations (P.S.-29-95) issued on May 30, 1996, and apply to leases entered into or renewed on or after September 26, 1997. AT-RISK LIMITATIONS The IRS has issued proposed regulations under Section 465(b)(6) (REG-105160-97) addressing whether the personal liability of an entity prevents financing from being treated as qualified nonrecourse financing. The proposed regulations also deal with whether qualified nonrecourse financing may be secured by property that is incidental to the activity of holding real property. PARTNERSHIPS In Revenue Ruling 97-38 (I.R.B. 1997-38) the IRS provided guidance regarding the allocation of losses where a partner's deficit restoration obligation is limited by reason of the partner's liability to the partnership's creditors. EPA EPA eicosapentaenoic acid. EPA abbr. eicosapentaenoic acid EPA, n.pr See acid, eicosapentaenoic. EPA, n. LAWSUIT NAA/NMHC and the National Leased Housing Association cleared an early hurdle in our case against the U.S. Environmental Protection Agency Environmental Protection Agency (EPA), independent agency of the U.S. government, with headquarters in Washington, D.C. It was established in 1970 to reduce and control air and water pollution, noise pollution, and radiation and to ensure the safe handling and (EPA) by overcoming EPA's attempt to induce the court to dismiss the lawsuit against the agency. The U.S. Court of Appeals for the D.C. Circuit ordered that the case (No. 97-1372) be referred to the merits panel for review. This means that there will be an opportunity to present arguments against EPA's regulation of lead "regardless of the source." According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. federal appellate procedural rules, once the briefing schedule is ordered by the court, we will prepare and file the brief which will set forth our positions on this issue. Information compiled by NAA/NMHC Joint Legislative Staff.' Senior Vice President Clarine Nardi Riddle; Vice President of Tax Jim Arbury; Vice President of Property Management Scott Belcher; Vice President of Environment Eileen Lee; Vice President of Housing and Finance Stephen Lefkovits; and Vice President of Building Codes Ron Nickson. |
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