About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

15 Prob. & Prop. 1 (1986)

handle is hein.journals/prbtprty15 and id is 1 raw text is: 









Section of Real Property, Probate and Trust Law American Bar Association Vol. 15, No. I Summer 1986

           The Effect of the Senate Finance Committee's

              Tax Reform Bill on the Real Estate Industry

                       by William L. O'Callaghan, Jr.* and Steven J. Printzt


   In March of 1986, Senator Robert Packwood,
chairman of the Senate Finance Committee, intro-
duced the first of what were to be his two tax re-
form proposals to the Senate Finance Committee.
The original proposal released in March (the Pro-
posal) set individual and corporate tax rates at a
maximum of 35 percent. The Committee modified
the Proposal to provide numerous tax breaks for
various special interest groups. As a result, the Pro-
posal failed to meet the goal of revenue neutrality
and was never voted on or approved by the Senate
Finance Committee. Parts of the Proposal became
the basis for, and were adopted in, the revised Sen-
ate proposal (the Bill), which was approved by a
unanimous vote of the Senate Finance Committee
in May. Accordingly, it is anticipated that the pro-
visions of the original Proposal and the Finance
Committee Bill will be the subject of debate on the
Senate floor.

   PROVISIONS OF THE MARCH PROPOSAL
 RELATING TO THE REAL ESTATE INDUSTRY

 Depreciation
   Under the earlier Proposal, the accelerated cost
recovery system would be retained with certain re-
covery periods being extended. Residential real
property would be depreciated using the straight-
line method over 25 years. All other real estate
would be depreciated using the straight-line meth-
od over 30 years. There would be no indexing of
depreciation deductions. Further, the current law
recapture rules of sections 1245 and 1250 would be
retained. These provisions would generally be ef-
fective for property placed in service after 1986,
subject to standard transition rules.

  *Chair, Real Property Division Committee D-2 on Federal Tax
Aspects of Real Estate Transactions.
  Steven J. Printz is an associate attorney with Mr. O'Callaghan's
firm.


Capital Gains
  The top individual tax rate on long-term capital
gains would remain at 20 percent. The top corpo-
rate tax rate on long-term capital gains would re-
main at 28 percent. There would be no indexing of
the basis of capital assets.
Interest Expense
  The deduction for consumer interest would be
limited to $1,000 ($2,000 for joint returns). The
deduction for investment interest (in excess of net
investment income) would be limited to only any
excess remaining to the taxpayer for the year of the
$1,000 (or $2,000) limit applicable to consumer in-
terest. This provision would be phased in ratably
over a five-year period. Accordingly, 20 percent of
the difference between the allowable interest de-
duction under current law, less the interest deduc-
tion under the Proposal, would be disallowed in
1987, 40 percent of that amount would be disal-
lowable in 1988, and so on until the Proposal is ful-
ly phased in after 1990. Interest on principal resi-
dences and second residences would be excepted
from the limitation, with residences to include
housing cooperatives. Interest deductions would be
                            (continued on page 2)


Copyright © 1986 American Bar Association


Produced by the ABA Press

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Contact us for annual subscription options:

Already a HeinOnline Subscriber?

profiles profiles most