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Industry may not benefit from proposed tax bills.

Philip J. Wiesner, national director of Real Estate Tax Services for KPMG Peat Marwick's National Real Estate Practice, said that passage of tax provisions that would help the real estate industry are "uncertain at this point, particularly because of concerns over the budget deficit and that the proposed changes would cause revenue shortfalls."

Wiesner cited one proposal that would allow real estate entrepreneurs to offset rental real estate losses against non-rental real estate income as a good example. "While this change is clearly meritorious, there is a great deal of hesitancy on the part of Congress to enact changes that would cause federal revenues to decline," he said.

Commenting from the firm's Washington National Tax Office, Wienser said, "Some members of the current Congress have introduced legislation that would provide the real estate industry with some limited relief from the heavy impact of the Tax Reform Act of 1986. The bill with the widest Congressional support is H.R. 1414 (S. 1257), which contains provisiom for real estate entrepreneurs to offset rental losses with other non-rental real estate income under the otherwise onerous passive loss rules (Code section 469). The bill would be effective only for tax years beginning after December 31, 1991.

"The proposed bill corrects a blatant inequity of the 1986 Act under which many real estate people have rental real estate losses that they cannot offset against other real estate-generated income. Because of the earlier inequity, it has a great deal of trade association support and has been co-sponsored by over 200 members of the House. However, the bill's prospects for passage remain uncertain because it would result in a projected revenue loss," Wiesner said.

Wiesner added that certain members of the tax writing committees are expected to be less than enthusiastic in their support because of concern over upsetting the "delicate balance" of the 1986 Act. "Clearly, the real estate industry must continue to apply pressure if it is to attain any form of relief from the excesses of the 1986 Act," he said.

Wiesner said similar problems face other proposed bills which would provide, for example, special passive loss relief to encourage the purchase of property held by the Resolution Trust Corporation, or provide deductions for certain fees imposed by state and local governments for sewer and water services, or provide for the exclusion from gross income certain contributions in aid of construction.

"On the flip side of the coin, there are other bills designed to produce revenue, such as S 1393 which would impose a 50 percent excise tax on certain fees or other payments received by general partnerships, managers, investment bankers and others who gain from a roll-up or other combination of partners where dissenters are not permitted to opt out of their investment. Such a bill has populist appeal and, if it were estimated to raise even a small amount of revenue, might be attached to a general tax bill to offset some other revenue-losing item, Wiesner said.

"None of the real estate provisions is big enough to drive a tax bill through the Congress -- they can only be enacted as part of a larger tax bill. At present, except for the push by the Chairman of the House Ways and Means Committee for tax simplification, the rest of Congress appears to be in no hurry to enact a tax bill, especially after the bloody budget battle of last year, Wiesner said.

"Even if a tax bill focusing on simplification gets through, it doesn't appear that the real estate industry will benefit because nearly all the proposals thus far will result in less revenue, and that reality isn't too popular on the Hill," Wiesner said. "Concerns about the ever-growing budget deficit are simply too great."
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Title Annotation:real estate industry
Publication:Real Estate Weekly
Date:Oct 2, 1991
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