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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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
(a)(1) Subsection (c) of section 469 of the Internal
Revenue Code of 1986 (relating to passive activity losses
and credits limited) is amended by adding at the end the
following new paragraphs:
‘‘(7) TAXPAYERS ENGAGED IN THE REAL PROP-
ERTY BUSINESS.—In the case of a taxpayer engaged
in the real property business, the determination of
what constitutes an activity and whether an activity
is a passive activity shall be made by treating the
taxpayer’s rental real property operations, undertak-
ings and activities in the same manner as nonrental
trade or business operations, undertakings, and ac-
tivities.
‘‘(8) INDIVIDUALS
ENGAGED
IN
THE
REAL
PROPERTY BUSINESS.—For purposes of paragraph
(7), an individual is engaged in the real property
business if—
‘‘(A) such individual spends at least 50
percent of such individual’s working time in
real property operations; and
‘‘(B) such individual spends more than 500
hours during the taxable year in real property
operations.
‘‘(9) REAL PROPERTY OPERATIONS.—For pur-
poses of paragraph (8), the term ‘real property oper-
ations’ means any real property development, rede-
velopment, construction, reconstruction, acquisition,
conversion, rental, operation, management, and leas-
ing.
‘‘(10) WORKING TIME.—For purposes of para-
graph (8), the term ‘working time’ means any time
spent providing services or otherwise working in con-
nection with the activity, whether in the capacity of
an employee, sole proprietor, S corporation share-
holder, partner in a partnership, or beneficiary of a
trust or estate.
‘‘(11) CLOSELY
HELD
C
CORPORATIONS
EN-
GAGED
IN
THE
REAL
PROPERTY
BUSINESS.—For
purposes of paragraph (7), a closely held C corpora-
tion is engaged in the real property business if 1 or
more shareholders owning stock representing more
than 50 percent (by value) of the outstanding stock
of such corporation participate for more than 500
hours in the aggregate real property activities of
such corporation.’’
(2) Subsection (h) of section 469 of such Code is
amended by adding at the end the following new para-
graph:
‘‘(6) INDIVIDUALS
ENGAGED
IN
THE
REAL
PROPERTY BUSINESS.—In the case of an individual
engaged in the real property business (within the
meaning of paragraph (8) of subsection (c)), such
individual shall be treated as materially participating
in an activity which includes real property operations
(within the meaning of paragraph (9) of subsection
(c)) only if the individual participates for more than
500 hours in such real property operations. For pur-
poses of this paragraph, the number of hours which
an individual participates in real property operations
shall be determined without application of paragraph
(5) of this subsection (h).’’
(b)(1) Paragraph (2) of section 469(c) of such Code
is amended to read as follows:
‘‘(2) PASSIVE
ACTIVITY
INCLUDES
CERTAIN
RENTAL
ACTIVITIES.—Except for rental activities
treated in the same manner as nonrental trade or
business activities pursuant to paragraph (7), each
rental activity is a passive activity without regard to
whether or not the taxpayer materially participates
in the rental activity.’’
(2) Paragraph (4) of such section 469(c) is amended
to read as follows:
‘‘(4) MATERIAL PARTICIPATION NOT REQUIRED
FOR PARAGRAPH (3).—Paragraph (3) shall be ap-
plied without regard to whether or not the taxpayer
materially participates in the activity.’’
(c) The amendments made by this section shall apply
to taxable years beginning after December 31, 1992.
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