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103D CONGRESS

1ST SESSION H. R. 414

To amend the Internal Revenue Code of 1986 with respect to the treatment

of certain real estate activities under the limitations on losses from

passive activities.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 5, 1993

Mr. STUMP introduced the following bill; which was referred to the Committee

on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 with respect

to the treatment of certain real estate activities under

the limitations on losses from passive activities.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 That subsection (c) of section 469 of the Internal Revenue

4 Code of 1986 (relating to passive activity losses and cred5 its limited) is amended by adding at the end the following

6 new paragraphs:

7 ‘‘(7) TAXPAYERS ENGAGED IN THE REAL PROP8 ERTY BUSINESS.—In the case of a taxpayer engaged

9 in the real property business, the determination of
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1 what constitutes an activity and whether an activity

2 is a passive activity shall be made by treating the

3 taxpayer’s rental real property operations, undertak4 ings and activities in the same manner as nonrental

5 trade or business operations, undertakings, and ac6 tivities.

7 ‘‘(8) INDIVIDUALS ENGAGED IN THE REAL

8 PROPERTY BUSINESS.—For purposes of paragraph

9 (7), an individual is engaged in the real property

10 business if—

11 ‘‘(A) such individual spends at least 50

12 percent of such individual’s working time in

13 real property operations; and

14 ‘‘(B) such individual spends more than 500

15 hours during the taxable year in real property

16 operations.

17 ‘‘(9) REAL PROPERTY OPERATIONS.—For pur18 poses of paragraph (8), the term ‘real property oper19 ations’ means any real property development, rede20 velopment, construction, reconstruction, acquisition,

21 conversion, rental, operation, management, leasing,

22 brokerage, appraisal, and finance operations.

23 ‘‘(10) WORKING TIME.—For purposes of para24 graph (8), the term ‘working time’ means any time

25 spent as an employee, sole proprietor, S corporation
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1 shareholder, partner in a partnership, or beneficiary

2 of a trust or estate.

3 ‘‘(11) CLOSELY HELD C CORPORATIONS EN4 GAGED IN THE REAL PROPERTY BUSINESS.—For

5 purposes of paragraph (7), a closely held C corpora6 tion is engaged in the real property business if—

7 ‘‘(A) 1 or more shareholders owning stock

8 representing more than 50 percent (by value) of

9 the outstanding stock of such corporation mate10 rially participate in the aggregate real property

11 activities of such corporation; or

12 ‘‘(B) such corporation meets the require13 ments of section 465(c)(7)(C) (without regard

14 to clause (iv)) with respect to the aggregate real

15 property activities of such corporation.’’

16 (b)(1) Paragraph (2) of section 469(c) of such Code

17 is amended to read as follows:

18 ‘‘(2) PASSIVE ACTIVITY INCLUDES CERTAIN

19 RENTAL ACTIVITIES.—Except for rental activities

20 treated in the same manner as nonrental trade or

21 business activities pursuant to paragraph (7), each

22 rental activity is a passive activity without regard to

23 whether or not the taxpayer materially participates

24 in the rental activity.’’
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1 (2) Paragraph (4) of such section 469(c) is amended

2 to read as follows:

3 ‘‘(4) MATERIAL PARTICIPATION NOT REQUIRED

4 FOR PARAGRAPH (3).—Paragraph (3) shall be ap5 plied without regard to whether or not the taxpayer

6 materially participates in the activity.’’

7 (c) The amendments made by this section shall apply

8 to taxable years beginning after December 31, 1993.

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