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103D CONGRESS

1ST SESSION H. R. 1465

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

MARCH 24, 1993

Mr. ORTON 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 (a)(1) Subsection (c) of section 469 of the Internal

4 Revenue Code of 1986 (relating to passive activity losses

5 and credits limited) is amended by adding at the end the

6 following 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, and leas22 ing.

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

25 spent providing services or otherwise working in con-
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1 nection with the activity, whether in the capacity of

2 an employee, sole proprietor, S corporation share3 holder, partner in a partnership, or beneficiary of a

4 trust or estate.

5 ‘‘(11) CLOSELY HELD C CORPORATIONS EN6 GAGED IN THE REAL PROPERTY BUSINESS.—For

7 purposes of paragraph (7), a closely held C corpora8 tion is engaged in the real property business if 1 or

9 more shareholders owning stock representing more

10 than 50 percent (by value) of the outstanding stock

11 of such corporation participate for more than 500

12 hours in the aggregate real property activities of

13 such corporation.’’

14 (2) Subsection (h) of section 469 of such Code is

15 amended by adding at the end the following new para16 graph:

17 ‘‘(6) INDIVIDUALS ENGAGED IN THE REAL

18 PROPERTY BUSINESS.—In the case of an individual

19 engaged in the real property business (within the

20 meaning of paragraph (8) of subsection (c)), such

21 individual shall be treated as materially participating

22 in an activity which includes real property operations

23 (within the meaning of paragraph (9) of subsection

24 (c)) only if the individual participates for more than

25 500 hours in such real property operations. For pur-
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1 poses of this paragraph, the number of hours which

2 an individual participates in real property operations

3 shall be determined without application of paragraph

4 (5) of this subsection (h).’’

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

6 is amended to read as follows:

7 ‘‘(2) PASSIVE ACTIVITY INCLUDES CERTAIN

8 RENTAL ACTIVITIES.—Except for rental activities

9 treated in the same manner as nonrental trade or

10 business activities pursuant to paragraph (7), each

11 rental activity is a passive activity without regard to

12 whether or not the taxpayer materially participates

13 in the rental activity.’’

14 (2) Paragraph (4) of such section 469(c) is amended

15 to read as follows:

16 ‘‘(4) MATERIAL PARTICIPATION NOT REQUIRED

17 FOR PARAGRAPH (3).—Paragraph (3) shall be ap18 plied without regard to whether or not the taxpayer

19 materially participates in the activity.’’

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

21 to taxable years beginning after December 31, 1992.

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