I.R.C. § 469(a) Disallowance
I.R.C. § 469(a)(1) In General —
If for any taxable year the taxpayer is described in paragraph (2), neither—
I.R.C. § 469(a)(1)(A) —
the passive activity loss, nor
I.R.C. § 469(a)(1)(B) —
the passive activity credit, for the taxable year shall be allowed.
I.R.C. § 469(a)(2) Persons Described —
The following are described in this paragraph:
I.R.C. § 469(a)(2)(A) —
any individual, estate, or trust,
I.R.C. § 469(a)(2)(B) —
any closely held C corporation, and
I.R.C. § 469(a)(2)(C) —
any personal service corporation.
I.R.C. § 469(b) Disallowed Loss Or Credit Carried To Next Year —
Except as otherwise provided in this section, any loss or credit from an activity
which is disallowed under subsection (a) shall be treated as a deduction
or credit allocable to such activity in the next taxable year.
I.R.C. § 469(c) Passive Activity Defined —
For purposes of this section—
I.R.C. § 469(c)(1) In General —
The term “passive activity” means any activity—
I.R.C. § 469(c)(1)(A) —
which involves the conduct of any trade or business, and
I.R.C. § 469(c)(1)(B) —
in which the taxpayer does not materially participate.
I.R.C. § 469(c)(2) Passive Activity Includes Any Rental Activity —
Except as provided in paragraph (7), the term “passive activity"
includes any rental activity.
I.R.C. § 469(c)(3) Working Interests In Oil And Gas Property
I.R.C. § 469(c)(3)(A) In General —
The term “passive activity” shall not include any working interest in any oil or
gas property which the taxpayer holds directly or through an entity which does not
limit the liability of the taxpayer with respect to such interest.
I.R.C. § 469(c)(3)(B) Income In Subsequent Years —
If any taxpayer has any loss for any taxable year from a working interest in any
oil or gas property which is treated as a loss which is not from a passive activity,
then any net income from such property (or any property the basis of which is determined
in whole or in part by reference to the basis of such property) for any succeeding
taxable year shall be treated as income of the taxpayer which is not from a passive
activity. If the preceding sentence applies to the net income from any property
for any taxable year, any credits allowable under subpart B (other than section
27) or D of part IV of subchapter A for such taxable year which are attributable to
such property shall be treated as credits not from a passive activity to the extent
the amount of such credits does not exceed the regular tax liability of the taxpayer
for the taxable year which is allocable to such net income.
I.R.C. § 469(c)(4) Material Participation Not Required For Paragraphs (2) And (3) —
Paragraphs (2) and (3) shall be applied without regard to whether or not the taxpayer materially participates
in the activity.
I.R.C. § 469(c)(5) Trade Or Business Includes Research And Experimentation Activity —
For purposes of paragraph (1)(A), the term “trade or business” includes any activity involving research or experimentation
(within the meaning of section 174).
I.R.C. § 469(c)(6) Activity In Connection With Trade Or Business Or Production Of Income —
To the extent provided in regulations, for purposes of paragraph (1)(A), the term “trade or business” includes—
I.R.C. § 469(c)(6)(A) —
any activity in connection with a trade or business, or
I.R.C. § 469(c)(6)(B) —
any activity with respect to which expenses are allowable as a deduction under section
212.
I.R.C. § 469(c)(7) Special Rules For Taxpayers In Real Property Business
I.R.C. § 469(c)(7)(A) In General —
If this paragraph applies to any taxpayer for a taxable
year—
I.R.C. § 469(c)(7)(A)(i) —
paragraph (2) shall not apply to any rental real estate activity of such taxpayer for such taxable
year, and
I.R.C. § 469(c)(7)(A)(ii) —
this section shall be applied as if each interest of the taxpayer in rental real
estate were a separate activity.
Notwithstanding clause (ii), a taxpayer may elect to treat all interests in rental real estate as one activity.
Nothing in the preceding provisions of this subparagraph shall be construed as affecting
the determination of whether the taxpayer
materially participates with respect to any interest in a limited
partnership as a limited partner.
I.R.C. § 469(c)(7)(B) Taxpayers To Whom Paragraph Applies —
This paragraph shall apply to a taxpayer for a taxable year if—
I.R.C. § 469(c)(7)(B)(i) —
more than one-half of the personal services performed in trades or businesses by
the taxpayer during such taxable year are performed in real property trades or businesses
in which the taxpayer materially participates, and
I.R.C. § 469(c)(7)(B)(ii) —
such taxpayer performs more than 750 hours of services during the taxable year in
real property trades or businesses in which the taxpayer materially participates.
In the case of a joint return, the requirements of the
preceding sentence are satisfied if and only if either spouse separately
satisfies such requirements. For purposes of the preceding sentence,
activities in which a spouse materially participates shall be determined
under subsection (h).
I.R.C. § 469(c)(7)(C) Real Property Trade Or Business —
For purposes of this paragraph, the term “real property trade or business” means
any real property development, redevelopment, construction, reconstruction, acquisition,
conversion, rental, operation, management, leasing, or brokerage trade or business.
I.R.C. § 469(c)(7)(D) Special Rules For Subparagraph (B)
I.R.C. § 469(c)(7)(D)(i) Closely Held C Corporations —
In the case of a closely held C corporation, the requirements of subparagraph (B) shall be treated as met for any taxable year if more than 50 percent of the gross
receipts of such corporation for such taxable year are
derived from real property trades or businesses in which the corporation
materially participates.
I.R.C. § 469(c)(7)(D)(ii) Personal Services As An Employee —
For purposes of subparagraph (B), personal services performed as an employee shall not be treated as performed in
real property trades or businesses. The preceding sentence shall not apply if such
employee is a 5-percent owner (as defined in section 416(i)(1)(B)) in the employer.
I.R.C. § 469(d) Passive Activity Loss And Credit Defined —
For purposes of this section—
I.R.C. § 469(d)(1) Passive Activity Loss —
The term “passive activity loss” means the amount (if any) by which—
I.R.C. § 469(d)(1)(A) —
the aggregate losses from all passive activities for the taxable year, exceed
I.R.C. § 469(d)(1)(B) —
the aggregate income from all passive activities for such year.
I.R.C. § 469(d)(2) Passive Activity Credit —
The term “passive activity credit” means the amount
(if any) by which—
I.R.C. § 469(d)(2)(A) —
the sum of the credits from all passive activities allowable for the taxable year
under—
I.R.C. § 469(d)(2)(A)(i) —
subpart D of part IV of subchapter A, or
I.R.C. § 469(d)(2)(A)(ii) —
subpart B (other than section 27) of such part IV, exceeds
I.R.C. § 469(d)(2)(B) —
the regular tax liability of the taxpayer for the taxable year allocable to all
passive activities.
I.R.C. § 469(e) Special Rules For Determining Income Or Loss From A Passive Activity —
For purposes of this section—
I.R.C. § 469(e)(1) Certain Income Not Treated As Income From Passive Activity —
In determining the income or loss from any activity—
I.R.C. § 469(e)(1)(A) In General —
There shall not be taken into account—
I.R.C. § 469(e)(1)(A)(i) —
any—
I.R.C. § 469(e)(1)(A)(i)(I) —
gross income from interest, dividends, annuities, or royalties not derived in the
ordinary course of a trade or business,
I.R.C. § 469(e)(1)(A)(i)(II) —
expenses (other than interest) which are clearly and directly allocable to such
gross income, and
I.R.C. § 469(e)(1)(A)(i)(III) —
interest expense properly allocable to such gross income, and
I.R.C. § 469(e)(1)(A)(ii) —
gain or loss not derived in the ordinary course of a trade or business which is
attributable to the disposition of property—
I.R.C. § 469(e)(1)(A)(ii)(I) —
producing income of a type described in clause (i), or
I.R.C. § 469(e)(1)(A)(ii)(II) —
held for investment.
For purposes of clause (ii), any interest in a passive activity shall not be treated as property held for investment.
I.R.C. § 469(e)(1)(B) Return On Working Capital —
For purposes of subparagraph (A), any income, gain, or loss which is attributable to an investment of working capital
shall be treated as not derived in the ordinary course of a trade or business.
I.R.C. § 469(e)(2) Passive Losses Of Certain Closely Held Corporations May Offset Active Income
I.R.C. § 469(e)(2)(A) In General —
If a closely held C corporation (other than a personal service corporation) has
net active income for any taxable year, the passive activity loss of such taxpayer
for such taxable year
(determined without regard to this paragraph)—
I.R.C. § 469(e)(2)(A)(i) —
shall be allowable as a deduction against net active income, and
I.R.C. § 469(e)(2)(A)(ii) —
shall not be taken into account under subsection (a) to the extent so allowable as a deduction.
A similar rule shall apply in the case of any passive
activity credit of the taxpayer.
I.R.C. § 469(e)(2)(B) Net Active Income —
For purposes of this paragraph, the term “net active income” means the taxable income
of the taxpayer for the taxable year determined without regard to—
I.R.C. § 469(e)(2)(B)(i) —
any income or loss from a passive activity, and
I.R.C. § 469(e)(2)(B)(ii) —
any item of gross income, expense, gain, or loss described in paragraph (1)(A).
I.R.C. § 469(e)(3) Compensation For Personal Services —
Earned income (within the meaning of section 911(d)(2)(A)) shall not be taken into account in computing the income or loss from a passive
activity for any taxable year.
I.R.C. § 469(e)(4) Dividends Reduced By Dividends Received Deduction —
For purposes of paragraphs (1) and (2), income from dividends shall be reduced by the amount of any dividends received
deduction under section 243 or 245.
I.R.C. § 469(f) Treatment Of Former Passive Activities —
For purposes of this section—
I.R.C. § 469(f)(1) In General —
If an activity is a former passive activity for any taxable year—
I.R.C. § 469(f)(1)(A) —
any unused deduction allocable to such activity under subsection (b) shall be offset against the income from such activity for the taxable year,
I.R.C. § 469(f)(1)(B) —
any unused credit allocable to such activity under subsection (b) shall be offset against the regular tax liability (computed after the application
of paragraph (1)) allocable to such activity for the taxable year, and
I.R.C. § 469(f)(1)(C) —
any such deduction or credit remaining after the application of subparagraphs (A) and (B) shall continue to be treated as arising from a passive activity.
I.R.C. § 469(f)(2) Change In Status Of Closely Held C Corporation Or Personal Service Corporation —
If a taxpayer ceases for any taxable year to be a closely held C corporation or
personal service corporation, this section shall continue to apply to losses and
credits to which this section applied for any preceding taxable year in the same
manner as if such taxpayer continued to be a closely held C corporation or personal
service corporation, whichever is applicable.
I.R.C. § 469(f)(3) Former Passive Activity —
The term “former passive activity” means any activity which, with respect to the
taxpayer—
I.R.C. § 469(f)(3)(A) —
is not a passive activity for the taxable year, but
I.R.C. § 469(f)(3)(B) —
was a passive activity for any prior taxable year.
I.R.C. § 469(g) Dispositions Of Entire Interest In Passive Activity —
If during the taxable year a taxpayer disposes of his entire interest in any passive
activity (or former passive activity), the following rules shall apply:
I.R.C. § 469(g)(1) Fully Taxable Transaction
I.R.C. § 469(g)(1)(A) In General —
If all gain or loss realized on such disposition is recognized, the excess of—
I.R.C. § 469(g)(1)(A)(i) —
any loss from such activity for such taxable year (determined after the application
of subsection (b)), over
I.R.C. § 469(g)(1)(A)(ii) —
any net income or gain for such taxable year from all other passive activities (determined
after the application of subsection (b)),
shall be treated as a loss which is not from a passive activity.
I.R.C. § 469(g)(1)(B) Subparagraph (A) Not To Apply To Disposition Involving Related Party —
If the taxpayer and the person acquiring the interest bear a relationship to each
other described in section 267(b) or section 707(b)(1), then subparagraph (A) shall not apply to any loss of the taxpayer until the taxable year in which such
interest is acquired (in a transaction described in subparagraph (A)) by another person who does not bear such a relationship to the taxpayer.
I.R.C. § 469(g)(1)(C) Income From Prior Years —
To the extent provided in regulations, income or gain from the activity for preceding
taxable years shall be taken into account under subparagraph (A)(ii) for the taxable year to the extent necessary to prevent the avoidance of this section.
I.R.C. § 469(g)(2) Disposition By Death —
If an interest in the activity is transferred by reason of the death of the taxpayer—
I.R.C. § 469(g)(2)(A) —
paragraph (1)(A) shall apply to losses described in paragraph (1)(A) to the extent such losses are greater than the excess (if any) of—
I.R.C. § 469(g)(2)(A)(i) —
the basis of such property in the hands of the transferee, over
I.R.C. § 469(g)(2)(A)(ii) —
the adjusted basis of such property immediately before the death of the taxpayer,
and
I.R.C. § 469(g)(2)(B) —
any losses to the extent of the excess described in subparagraph (A) shall not be allowed as a deduction for any taxable year.
I.R.C. § 469(g)(3) Installment Sale Of Entire Interest —
In the case of an installment sale of an entire interest in an activity to which
section 453 applies, paragraph (1) shall apply to the portion of such losses for each taxable year which bears the
same ratio to all such losses as the gain recognized on such sale during such taxable
year bears to the gross profit from such sale (realized or to be realized when payment
is completed).
I.R.C. § 469(h) Material Participation Defined —
For purposes of this section—
I.R.C. § 469(h)(1) In General —
A taxpayer shall be treated as materially participating in an activity only if the
taxpayer is involved in the operations of the activity on a basis which is—
I.R.C. § 469(h)(1)(A) —
regular,
I.R.C. § 469(h)(1)(B) —
continuous, and
I.R.C. § 469(h)(1)(C) —
substantial.
I.R.C. § 469(h)(2) Interests In Limited Partnerships —
Except as provided in regulations, no interest in a limited partnership as a limited
partner shall be treated as an interest with respect to which a taxpayer materially
participates.
I.R.C. § 469(h)(3) Treatment Of Certain Retired Individuals And Surviving Spouses —
A taxpayer shall be treated as materially participating in any farming activity
for a taxable year if paragraph (4) or (5) of section 2032A(b) would cause the requirements of section 2032A(b)(1)(C)(ii) to be met with respect to real property used in such activity if such taxpayer had
died during the taxable year.
I.R.C. § 469(h)(4) Certain Closely Held C Corporations And Personal Service Corporations —
A closely held C corporation or personal service corporation shall be treated as
materially participating in an activity only if—
I.R.C. § 469(h)(4)(A) —
1 or more shareholders holding stock representing more than 50 percent (by value)
of the outstanding stock of such corporation materially participate in such activity,
or
I.R.C. § 469(h)(4)(B) —
in the case of a closely held C corporation
(other than a personal service corporation), the requirements of section 465(c)(7)(C) (without regard to clause (iv))
are met with respect to such activity.
I.R.C. § 469(h)(5) Participation By Spouse —
In determining whether a taxpayer materially participates, the participation of
the spouse of the taxpayer shall be taken into account.
I.R.C. § 469(i) $25,000 Offset For Rental Real Estate Activities
I.R.C. § 469(i)(1) In General —
In the case of any natural person, subsection (a) shall not apply to that
portion of the passive activity loss or the deduction equivalent
(within the meaning of subsection (j)(5)) of the passive activity credit for any taxable year which is attributable to all
rental real estate activities with respect to which such individual actively participated
in such taxable year (and if any portion of such loss or credit arose in another
taxable year, in such other taxable year).
I.R.C. § 469(i)(2) Dollar Limitation —
The aggregate amount to which paragraph (1) applies for any taxable year shall not exceed $25,000.
I.R.C. § 469(i)(3) Phase-Out Of Exemption
I.R.C. § 469(i)(3)(A) In General —
In the case of any taxpayer, the $25,000 amount under paragraph (2) shall be reduced (but not below zero) by 50 percent of the amount by which the
adjusted gross income of the taxpayer for the taxable year exceeds
$100,000.
I.R.C. § 469(i)(3)(B) Special Phase-Out Of Rehabilitation Credit —
In the case of any portion of the passive activity credit for any taxable year which
is attributable to the rehabilitation credit determined under section 47, subparagraph (A) shall be applied by substituting “$200,000” for “$100,000”.
I.R.C. § 469(i)(3)(C) Exception For Low-Income Housing Credit —
Subparagraph (A) shall not apply to any portion of the passive activity credit for any taxable year
which is attributable to any credit determined under section
42.
I.R.C. § 469(i)(3)(D) Ordering Rule —
Paragraph (1) shall be applied for any taxable year—
I.R.C. § 469(i)(3)(D)(i) —
first, to the passive activity loss,
I.R.C. § 469(i)(3)(D)(ii) —
second, to the portion of the passive activity credit to which subparagraph (B) and
(C) does not apply,
I.R.C. § 469(i)(3)(D)(iii) —
third, to the portion of such credit to which subparagraph (B) applies, and
I.R.C. § 469(i)(3)(D)(iv) —
then, to the portion of such credit to which subparagraph (C) applies.
I.R.C. § 469(i)(3)(E) Adjusted Gross Income —
For purposes of this paragraph, adjusted gross income shall be determined without
regard to—
I.R.C. § 469(i)(3)(E)(i) —
any amount includible in gross income under section 86,
I.R.C. § 469(i)(3)(E)(ii) —
the amounts excludable from gross income under sections 85(c), 135, and 137,
I.R.C. § 469(i)(3)(E)(iii) —
the amounts allowable as a deduction under sections 219, 221, and 250, and
I.R.C. § 469(i)(3)(E)(iv) —
any passive activity loss or any loss allowable by reason of subsection (c)(7).
I.R.C. § 469(i)(4) Special Rule For Estates
I.R.C. § 469(i)(4)(A) In General —
In the case of taxable years of an estate ending less than 2 years after the date
of the death of the decedent, this subsection shall apply to all rental real estate
activities with respect to which such decedent actively participated before his death.
I.R.C. § 469(i)(4)(B) Reduction For Surviving Spouse's Exemption —
For purposes of subparagraph (A), the $25,000 amount under paragraph (2) shall
be reduced by the amount of the exemption under paragraph (1) (without regard to paragraph (3)) allowable to the surviving spouse of the decedent for the taxable year ending with
or within the taxable year of the estate.
I.R.C. § 469(i)(5) Married Individuals Filing Separately
I.R.C. § 469(i)(5)(A) In General —
Except as provided in subparagraph (B), in the case of any married individual filing a separate return, this subsection
shall be applied by substituting—
I.R.C. § 469(i)(5)(A)(i) —
“$12,500” for “$25,000” each place it appears,
I.R.C. § 469(i)(5)(A)(ii) —
“$50,000” for “$100,000” in paragraph (3)(A), and
I.R.C. § 469(i)(5)(A)(iii) —
“$100,000” for “$200,000” in paragraph (3)(B).
I.R.C. § 469(i)(5)(B) Taxpayers Not Living Apart —
This subsection shall not apply to a taxpayer who—
I.R.C. § 469(i)(5)(B)(i) —
is a married individual filing a separate return for any taxable year, and
I.R.C. § 469(i)(5)(B)(ii) —
does not live apart from his spouse at all times during such taxable year.
I.R.C. § 469(i)(6) Active Participation
I.R.C. § 469(i)(6)(A) In General —
An individual shall not be treated as actively participating with respect to any
interest in any rental real estate activity for any period if, at any time during
such period, such interest (including any interest of the spouse of the individual)
is less than 10 percent
(by value) of all interests in such activity.
I.R.C. § 469(i)(6)(B) No Participation Requirement For Low-Income Housing, Or Rehabilitation Credit —
Paragraphs (1) and (4)(A) shall be applied without regard to the active participation requirement in the case
of—
I.R.C. § 469(i)(6)(B)(i) —
any credit determined under section 42 for any taxable year, or
I.R.C. § 469(i)(6)(B)(ii) —
any rehabilitation credit determined under section 47,
I.R.C. § 469(i)(6)(C) Interest As A Limited Partner —
Except as provided in regulations, no interest as a limited partner in a limited
partnership shall be treated as an interest with respect to which the taxpayer actively
participates.
I.R.C. § 469(i)(6)(D) Participation By Spouse —
In determining whether a taxpayer actively participates, the participation of the
spouse of the taxpayer shall be taken into account.
I.R.C. § 469(j) Other Definitions And Special Rules —
For purposes of this section—
I.R.C. § 469(j)(1) Closely Held C Corporation —
The term “closely held C corporation” means any C corporation described in section
465(a)(1)(B).
I.R.C. § 469(j)(2) Personal Service Corporation —
The term “personal service corporation” has the meaning given such term by section
269A(b)(1), except that section 269A(b)(2) shall be applied—
I.R.C. § 469(j)(2)(A) —
by substituting “any” for “more than 10 percent”, and
I.R.C. § 469(j)(2)(B) —
by substituting “any” for “50 percent or more in value” in section 318(a)(2)(C).
A corporation shall not be treated as a personal service
corporation unless more than 10 percent of the stock (by value) in such corporation
is held by employee-owners (within the meaning of section 269A(b)(2), as modified by the preceding sentence).
I.R.C. § 469(j)(3) Regular Tax Liability —
The term “regular tax liability” has the meaning given such term by section 26(b).
I.R.C. § 469(j)(4) Allocation Of Passive Activity Loss And Credit —
The passive activity loss and the passive activity credit (and the $25,000 amount
under subsection (i)) shall be allocated to activities, and within activities, on a pro rata basis in
such manner as the Secretary may prescribe.
I.R.C. § 469(j)(5) Deduction Equivalent —
The deduction equivalent of credits from a passive activity for any taxable year
is the amount which (if allowed as a deduction) would reduce the regular tax liability
for such taxable year by an amount equal to such credits.
I.R.C. § 469(j)(6) Special Rule For Gifts —
In the case of a disposition of any interest in a passive activity by gift—
I.R.C. § 469(j)(6)(A) —
the basis of such interest immediately before the transfer shall be increased by
the amount of any passive activity losses allocable to such interest with respect
to which a deduction has not been allowed by reason of subsection (a), and
I.R.C. § 469(j)(6)(B) —
such losses shall not be allowable as a deduction for any taxable year.
I.R.C. § 469(j)(7) Qualified Residence Interest —
The passive activity loss of a taxpayer shall be computed without regard to qualified
residence interest (within the meaning of section 163(h)(3)).
I.R.C. § 469(j)(8) Rental Activity —
The term “rental activity” means any activity where payments are principally for
the use of tangible property.
I.R.C. § 469(j)(9) Election To Increase Basis Of Property By Amount Of Disallowed Credit —
For purposes of determining gain or loss from a disposition of any property to which
subsection (g)(1) applies, the transferor may elect to increase the basis of such property immediately
before the transfer by an amount equal to the portion of any unused credit allowable
under this chapter which reduced the basis of such property for the taxable year
in which such credit arose. If the taxpayer elects the application of this paragraph,
such portion of the passive activity credit of such taxpayer shall not be allowed
for any taxable year.
I.R.C. § 469(j)(10) Coordination With Section 280A —
If a passive activity involves the use of a dwelling unit to which section 280A(c)(5) applies for any taxable year, any income, deduction, gain, or loss allocable to
such use shall not be taken into account for purposes of this section for such taxable
year.
I.R.C. § 469(j)(11) Aggregation Of Members Of Affiliated Groups —
Except as provided in regulations, all members of an affiliated group which files
a consolidated return shall be treated as 1 corporation.
I.R.C. § 469(j)(12) Special Rule For Distributions By Estates Or Trusts —
If any interest in a passive activity is distributed by an estate or trust—
I.R.C. § 469(j)(12)(A) —
the basis of such interest immediately before such distribution shall be increased
by the amount of any passive activity losses allocable to such interest, and
I.R.C. § 469(j)(12)(B) —
such losses shall not be allowable as a deduction for any taxable year.
I.R.C. § 469(k) Separate Application Of Section In Case Of Publicly Traded Partnerships
I.R.C. § 469(k)(1) In General —
This section shall be applied separately with respect to items attributable to each
publicly traded partnership (and subsection (i) shall not apply with respect to items attributable to any such partnership). The
preceding sentence shall not apply to any credit determined under section 42, or any rehabilitation credit determined under section 47, attributable to a publicly traded partnership to the extent the amount of any such
credits exceeds the regular tax liability attributable to income from such partnership.
I.R.C. § 469(k)(2) Publicly Traded Partnership —
For purposes of this section, the term “publicly traded partnership” means any partnership
if—
I.R.C. § 469(k)(2)(A) —
interests in such partnership are traded on an established securities market, or
I.R.C. § 469(k)(2)(B) —
interests in such partnership are readily tradable on a secondary market (or the
substantial equivalent thereof).
I.R.C. § 469(k)(3) Coordination With Subsection (g) —
For purposes of subsection (g), a taxpayer shall not be treated as having disposed of his entire interest in an
activity of a publicly traded partnership until he disposes of his entire interest
in such partnership.
I.R.C. § 469(k)(4) Application To Regulated Investment Companies —
For purposes of this section, a regulated investment company (as defined in section
851)
holding an interest in a qualified publicly traded partnership (as defined in section
851(h))
shall be treated as a taxpayer described in subsection (a)(2) with respect to items
attributable to such interest.
I.R.C. § 469(l) Regulations —
The Secretary shall prescribe such regulations as may be necessary or appropriate
to carry out provisions of this section, including regulations—
I.R.C. § 469(l)(1) —
which specify what constitutes an activity, material participation, or active participation
for purposes of this section,
I.R.C. § 469(l)(2) —
which provide that certain items of gross income will not be taken into account
in determining income or loss from any activity (and the treatment of expenses allocable
to such income),
I.R.C. § 469(l)(3) —
requiring net income or gain from a limited partnership or other passive activity
to be treated as not from a passive activity,
I.R.C. § 469(l)(4) —
which provide for the determination of the allocation of interest expense for purposes
of this section, and
I.R.C. § 469(l)(5) —
which deal with changes in marital status and changes between joint returns and
separate returns.
(Added by Pub. L. 99-514, title V, Sec. 501(a), Oct. 22, 1986, 100 Stat. 2233, and amended Pub. L. 100-203, title X, Sec. 10212(a), Dec. 22, 1987, 101 Stat. 1330-405; Pub. L. 100-647, title I, Sec.
1005(a)(1)-(9), (11), (12), title II, Sec. 2004(g), title VI, Sec.
6009(c)(3), Nov. 10, 1988, 102 Stat. 3387-3389, 3603, 3690;Pub. L. 101-239, title VII, Sec. 7109(a), Dec. 19, 1989, 103 Stat. 2322; Pub. L. 101-508, title XI, Sec. 11704(a)(6), 11813(b)(16), Nov. 5, 1990, 104 Stat. 1388-518, 1388-555; Pub. L. 103-66, title XIII, Sec. 13143, Aug. 10, 1993; Pub. L. 104-188, title I, Sec. 1704(d)(1), (e)(1), 1807(c)(4), Aug. 20, 1996, 110 Stat. 1755; Pub. L. 105-277, title IV, Sec. 4003(a)(2)(D), Oct. 21, 1998, 112 Stat 2681; Pub. L. 106-554, Sec. 101, Dec. 21, 2000, 114
Stat. 2763; Pub. L. 107-16, title IV, Sec. 431(c)(3), June 7, 2001, 115
Stat. 38; Pub. L. 107-147, title IV, Sec. 412(a), Mar. 9, 2002, 116 Stat. 21; Pub. L. 108-357, title I, III, Sec. 102(d)(5), 331(g), Oct. 22, 2004, 118 Stat. 1418; Pub. L. 113-295, Div. A, title II, Sec. 221(a)(41)(G), 221(a)(60)(A), Dec. 19, 2014, 128 Stat. 4010; Pub. L. 115-97, title I, Sec. 13305(b)(1), 14202(b)(3), Dec. 22, 2017, 131 Stat. 2054; Pub. L. 115-141, Div. U, title IV, Sec. 401(d)(1)(D)(ii), (d)(5), Mar. 23, 2018, 132 Stat. 348; Pub. L. 116-260, Div. EE, title I, Sec. 104(b)(2), Dec. 27, 2020, 134 Stat. 1182; Pub. L. 117-2, title IX, Sec. 9042(b)(8), Mar. 11, 2021, 135 Stat. 4.)
BACKGROUND NOTES
AMENDMENTS
2021—Subsec. (i)(3)(E)(iii). Pub. L. 117-2, Sec. 9042(b)(8), amended clause (iii) by substituting “85(c), 135, and 137”
for “135 and 137”.
2020—Subsec. (i)(3)(E)(iii). Pub. L. 116-260, Div. EE, Sec. 104(b)(2), amended clause (iii) by striking “222,”.
2018 - Subsec. (c)(3)(B). Pub. L. 115-141, Div. U, Sec. 401(d)(1)(D)(ii), amended subpar. (B) by substituting “27” for “27(a)”.
Subsec. (d)(2)(A)(ii). Pub. L. 115-141, Div. U, Sec. 401(d)(1)(D)(ii), amended clause
(ii) by substituting “27” for “27(a)”.
Subsec. (i)(3)(C)-(F). Pub. L. 115-141, Div. U, Sec. 401(d)(5)(B)(i), amended par. (3)
by striking subpar. (C) and by redesignating subpar. (D)-(F) as subpar.
(C)-(E), respectively. Before being struck, subpar. (C) read as follows:
“(C) Exception For Commercial Revitalization Deduction.—Subparagraph (A) shall not
apply to any portion of the passive activity loss for any taxable year which is attributable
to the commercial revitalization deduction under section 1400I.”
Subsec. (i)(3)(D). Pub. L. 115-141, Div. U, Sec. 401(d)(5)(B)(ii), amended subpar.
(D), as redesignated. Before amendment, it read as follows:
“(D) Exception For Low-Income Housing Credit.—Subparagraph
(A) shall not apply to any portion of the passive activity credit for any taxable
year which is attributable to any credit determined under section 42.”
Subsec. (i)(6)(B). Pub. L. 115-141, Div. U, Sec. 401(d)(5)(B)(iii)(I), amended subpar.
(B) by substituting “Or Rehabilitation Credit” for “, Rehabilitation Credit, or Commercial
Revitalization Deduction”
in the heading.
Subsec. (i)(6)(B)(i)-(iii). Pub. L. 115-141, Div. U, Sec. 401(d)(5)(B)(iii)(II)-(III), amended subpar. (B) by adding “or” at
the end of clause (i), by substituting a comma for “, or” at the end of clause (ii),
and by striking clause (iii). Before being struck, clause (iii) read as follows:
“(iii) any deduction under section 1400I
(relating to commercial revitalization deduction).”
2017 -
Subsec. (i)(3)(F)(iii). Pub. L. 115-97, Sec. 13305(b)(1), amended par. (3)(F)(iii) by striking “199”.
Subsec. (i)(3)(F)(iii). Pub. L. 115-97, Sec. 14202(b)(3), amended par. (3)(F)(iii) by substituting “222 and 250” for “and
222”.
2014 -
Subsec. (e)(4). Pub. L. 113-295, Div. A, Sec. 221(a)(41)(G), amended par. (4) by striking “, 244,”.
Subsec. (m). Pub. L. 113-295, Div. A, Sec. 221(a)(60)(A), struck subsec. (m). Before being struck, subsec. (m)
read as follows:
“(m) Phase-In Of Disallowance Of Losses And Credits For Interest Held Before Date
Of Enactment
“(1) In General.—In the case of any passive activity loss or passive activity credit
for any taxable year beginning in calendar years 1987 through 1990, subsection
(a) shall not apply to the applicable percentage of that portion of such loss (or
such credit) which is attributable to pre-enactment interests.
“(2) Applicable Percentage.—For purposes of this subsection, the applicable percentage
shall be determined in accordance with the following table:
In the case of taxable The applicable years beginning in: percentage is: 1987.............................. 65 1988.............................. 40 1989.............................. 20 1990.............................. 10
“(3) Portion Of Loss Or Credit Attributable To Pre-Enactment Interests.—For purposes
of this subsection—
“(A) In General.—The portion of the passive activity loss (or passive activity credit)
for any taxable year which is attributable to pre-enactment interests is the lesser
of—
“(i) the amount of the passive activity loss (or passive activity credit) which
is disallowed for the taxable year under subsection (a) (without regard to this subsection),
or
“(ii) the amount of the passive activity loss (or passive activity credit) which
would be disallowed for the taxable year (without regard to this subsection and without
regard to any amount allocable to an activity for the taxable year under subsection
(b)) taking into account only pre-enactment interests.
“(B) Pre-Enactment Interest.—
“(i) In General.—The term “pre-enactment interest” means any interest in a passive
activity held by a taxpayer on the date of the enactment of the Tax Reform Act of
1986, and at all times thereafter.
“(ii) Binding Contract Exception.—For purposes of clause (i), any interest acquired
after such date of enactment pursuant to a written binding contract in effect on such
date, and at all times thereafter, shall be treated as held on such date.
“(iii) Interest In Activities.—The term “pre-enactment interest” shall not include
an interest in a passive activity unless such activity was being conducted on such
date of enactment. The preceding sentence shall not apply to an activity commencing
after such date if—
“(I) the property used in such activity is acquired pursuant to a written binding
contract in effect on August 16, 1986, and at all times thereafter, or
“(II) construction of property used in such activity began on or before August 16,
1986.”
2004 -
Subsec. (i)(3)(F)(iii).Pub. L. 108-357, Sec. 102(d)(5), amended clause (iii)
by inserting “199,” before “219”.
Subsec. (k)(4). Pub. L. 108-357, Sec. 331(g), amended subsec. (k) by adding par. (4).
2002 -
Subsec. (i)(3)(E)(ii)-(iv).Pub. L. 107-147, amended clauses (ii)-(iv). Before amendment they read as follows:
“(ii) second to the portion of the passive activity credit to which subparagraph (B)
or (D) does not apply,
“(iii) third to the portion of such credit to which subparagraph (B) applies,
“(iv) fourth to the portion of such loss to which subparagraph (C) applies, and”.
2001 -
Subsec. (i)(3)(F).Pub. L. 107-16, amended subpar. (F) by substituting “, 221, and 222,” for “and 221”.
2000 -
Subsec. (i)(3). Pub. L. 106-554, amended par. (3) by redesignating subpars. (C)-(E) as subpars. (D)-(F), respectively,
and added new subpar. (C).
Subsec. (i)(3)(E). Pub. L. 106-554, amended subsec.
(E), as redesignated. Prior to amendment it read as follows:
“(E) ORDERING RULES TO REFLECT EXCEPTION AND SEPARATE PHASE-OUT. -
“If subparagraph (B) or
(C) applies for any taxable year, paragraph (1) shall be applied --
“(i) first to the passive activity loss,
“(ii) second to the portion of the passive activity credit to which subparagraph (B)
or (C) does not apply,
“(iii) third to the portion of such credit to which subparagraph (B) applies, and
“(iv) then to the portion of such credit to which subparagraph (C) applies.”
Subsec. (i)(6)(B). Pub. L. 106-554, Sec. 101(b)(3), amended the heading by substituting “, rehabilitation credit, or commercial revitalization
deduction” for “or rehabilitation credit”.
Subsec. (i)(6)(B). Pub. L. 106-554, Sec. 101(b)(3), amended subpar. (B) by striking “or” at the end of clause (i), by substituting “,
or” for the period at the end of clause (ii), and by adding clause (iii).
1998 -
Subsec. (i)(3)(E)(iii).Pub. L. 105-277, Sec. 4003(a)(2)(D), amended clause (iii). Prior to amendment it read as follows:
“(iii)
any amount allowable as a deduction under section 219, and”.
1996 -
Subsec. (c)(3)(B).Pub. L. 104-188, Sec. 1704(d)(1), added a sentence at the end.
Subsec. (g)(1)(A). Pub. L. 104-188, Sec. 1704(e)(1), amended subpar. (A). Before amendment subpar. (A) read as follows:
“(A)
In general--If all gain or loss realized on such disposition is recognized, the excess
of--
(i) the sum of--
(I) any loss from such activity for such taxable year (determined after application
of subsection (b)), plus
(II)
any loss realized on such disposition, over
(ii)
net income or gain for such taxable year from all passive activities
(determined without regard to losses described in clause (i)), shall be treated as
a loss which is not from a passive activity.”
Subsec. (i)(3)(E)(ii). Pub. L. 104-188, Sec. 1807(c)(4), amended clause (ii). Before amendment, clause (ii) read as follows:
“(ii)
the amount excludable from gross income under section 135,”.
1993 -
Subsec. (c)(2). Pub. L. 103-66, Sec. 13143(b)(1), amended par. (2) by substituting
“Except as provided in paragraph (7), the” for “The”.
Subsec. (c)(7). Pub. L. 103-66, Sec. 13143(a), added par. (7).
Subsec. (i)(3)(E)(iv). Pub. L. 103-66, Sec. 13143(b)(2), amended clause (iv) by inserting “or any loss allowable by reason of subsection
(c)(7)” after “loss”.
1990 -
Subsec. (i)(3)(B), (6)(B)(ii). Pub. L. 101-508, Sec. 11813(b)(16)(A), substituted ‘rehabilitation credit determined under section 47’ for
‘rehabilitation investment credit (within the meaning of section 48(o))’.
Subsec. (k)(1). Pub. L. 101-508, Sec. 11813(b)(16)(B), substituted ‘rehabilitation credit determined under section 47’ for
‘rehabilitation investment credit (within the meaning of section 48(o))’.
Subsec. (m)(3)(A). Pub. L. 101-508, Sec. 11704(a)(6), substituted ‘pre-enactment’ for ‘preenactment’.
1989 -
Subsec. (i)(3)(B), (C). Pub. L. 101-239 added subpars. (B) and (C) and struck out former subpars. (B) and (C) which read
as follows:
‘(B) Special phase-out of low-income housing and rehabilitation credits. - In the
case of any portion of the passive activity credit for any taxable year which is attributable
to any credit to which paragraph (6)(B) applies, subparagraph
(A) shall be applied by substituting ‘$200,000’ for ‘$100,000’.
‘(C) Ordering rule to reflect separate phase-outs. - If subparagraph (B) applies for
any taxable year, paragraph (1) shall be applied -
‘(i) first to the passive activity loss,
‘(ii)
second to the portion of the passive activity credit to which subparagraph
(B) does not apply, and
‘(iii)
then to the portion of such credit to which subparagraph (B) applies.’
Subsec. (i)(3)(D), (E). Pub. L. 101-239 added subpar. (D)
and redesignated former subpar. (D) as (E).
1988 -
Subsec. (e)(1)(A)(ii).Pub. L. 100-647, Sec. 1005(a)(1), inserted ‘not derived in the ordinary course of a trade or business which is’ after
‘gain or loss’.
Subsec. (g)(1)(A). Pub. L. 100-647, Sec. 1005(a)(2)(A), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows:
‘If all gain or loss realized on such disposition is recognized, any loss from such
activity which has not previously been allowed as a deduction (and in the case of
a passive activity for the taxable year, any loss realized on such disposition) shall
not be treated as a passive activity loss and shall be allowable as a deduction against
income in the following order:
‘(i)
Income or gain from the passive activity for the taxable year (including any gain
recognized on the disposition).
‘(ii)
Net income or gain for the taxable year from all passive activities.
‘(iii) Any other income or gain.’
Subsec. (g)(1)(C). Pub. L. 100-647, Sec. 1005(a)(2)(B), substituted ‘Income from prior years’ for ‘Coordination with section 1211’ in heading
and amended text generally. Prior to amendment, text read as follows: ‘In the case
of any loss realized on the disposition of an interest in a passive activity, section
1211 shall be applied before subparagraph (A) is applied.’
Subsec. (g)(2)(A). Pub. L. 100-647, Sec. 1005(a)(3), substituted ‘paragraph (1)(A)’ for ‘paragraph (1)’ and ‘to losses described in paragraph
(1)(A)’ for ‘to such losses’.
Subsec. (g)(3). Pub. L. 100-647, Sec. 1005(a)(4), substituted ‘(realized or to be realized’ for ‘realized (or to be realized)’ and
‘is completed)’ for ‘is completed’.
Subsec. (h)(4). Pub. L. 100-647, Sec. 1005(a)(5), inserted ‘only’ before ‘if’.
Subsec. (i)(1). Pub. L. 100-647, Sec. 1005(a)(6), substituted ‘in such taxable year (and if any portion of such loss or credit arose
in another taxable year, in such other taxable year)’
for ‘in the taxable year in which such portion of such loss or credit arose’.
Subsec. (i)(3)(D). Pub. L. 100-647, Sec. 6009(c)(3), added cl. (ii) and redesignated former cls. (ii) and (iii) as (iii)
and (iv), respectively.
Subsec. (i)(6)(C). Pub. L. 100-647, Sec. 1005(a)(7), substituted ‘Except as provided in regulations, no’ for ‘No’.
Subsec. (j)(6)(A). Pub. L. 100-647, Sec. 1005(a)(8), inserted ‘with respect to which a deduction has not been allowed by reason of subsection
(a)’ after ‘to such interest’.
Subsec. (j)(10), (11). Pub. L. 100-647, Sec. 1005(a)(9), added pars. (10) and (11).
Subsec. (j)(12). Pub. L. 100-647, Sec. 1005(a)(11), added par. (12).
Subsec. (k)(3). Pub. L. 100-647, Sec. 2004(g), added par. (3).
Subsec. (m). Pub. L. 100-647, Sec. 1005(a)(12), substituted ‘interest’ for ‘interests’ in heading.
Subsec. (m)(1). Pub. L. 100-647, Sec. 1005(a)(12), added par. (1) and struck out former par. (1) which read as follows:
‘In the case of any passive activity loss or credit for any taxable year beginning
in calendar years 1987 through 1990 which -
‘(A) is attributable to a pre-enactment interest, but
‘(B)
is not attributable to a carryforward to such taxable year of any loss or credit which
was disallowed under this section for a preceding taxable year, there shall be disallowed
under subsection (a) only the applicable percentage of the amount which (but for this
subsection)
would have been disallowed under subsection (a) for such taxable year.’
Subsec. (m)(2). Pub. L. 100-647, Sec. 1005(a)(12), added par. (2) and struck out former par. (2) which resulted in substituting
‘65’, ‘40’, ‘20’, and ‘10’ for ‘35’, ‘60’, ‘80’, and ‘90’ respectively, in second
column.
Subsec. (m)(3)(A). Pub. L. 100-647, Sec. 1005(a)(12), added subpar. (A) and struck out former subpar. (A) which read as follows: ‘The
portion of the passive activity loss for any taxable year which is attributable to
pre-enactment interests shall be equal to the lesser of -
‘(i) the passive activity loss for such taxable year, or
‘(ii)
the passive activity loss for such taxable year determined by taking into account
only pre-enactment interests.
For purposes of this subparagraph, the deduction equivalent (within the meaning of
subsection (j)(5))
of a passive activity credit shall be taken into account.'
1987 -
Subsecs. (k) to (m).Pub. L. 100-203 added subsec. (k) and redesignated former subsecs. (k) and (l) as (l) and
(m), respectively.
EFFECTIVE DATE OF 2021 AMENDMENT
Amendment by Pub. L. 117-2, Sec. 9042(b)(8), effective for taxable years beginning after December 31, 2019.
EFFECTIVE DATE OF 2020 AMENDMENT
Amendment by Pub. L. 116-260, Div. EE, Sec. 104(b)(2), effective for taxable years beginning after December 31,
2020.
EFFECTIVE DATE OF 2018 AMENDMENTS
Amendments by Pub. L. 115-141, Div. U, Sec. 401(d)(1)(D)(iii), effective March 23, 2018.
Amendments by Pub. L. 115-141, Div. U, Sec. 401(d)(5)(B), effective Mar. 23, 2018. Section 401(d)(5)(C) of Pub. L. 115-141, Div. U, provided the following savings clause:
“(C) SAVINGS PROVISIONS.—The amendments made by this paragraph shall not apply to—
“(i) in the case of the repeal of section 1400F of the Internal Revenue Code of 1986, qualified community assets (as defined in such section, as in effect before
its repeal) which were acquired by the taxpayer before January 1, 2010,
“(ii) in the case of the repeal section 1400H of such Code, wages paid or incurred
before January 1, 2010,
“(iii) in the case of the repeal of section 1400I of such Code, qualified revitalization
buildings (as defined in such section, as in effect before its repeal) which were
placed in service before January 1, 2010, and
“(iv) in the case of the repeal of section 1400J of such Code, property acquired before
January 1, 2010.”
Sec. 401(e) of Pub. L. 115-141, Div. U, provided the following Savings Provision:
“(e) General Savings Provision With Respect To Deadwood Provisions.—If—
“(1) any provision amended or repealed by the amendments made by subsection (b) or
(d)
applied to—
“(A) any transaction occurring before the date of the enactment of this Act,
“(B) any property acquired before such date of enactment, or
“(C) any item of income, loss, deduction, or credit taken into account before such
date of enactment, and
“(2) the treatment of such transaction, property, or item under such provision would
(without regard to the amendments or repeals made by such subsection)
affect the liability for tax for periods ending after such date of enactment,
“nothing in the amendments or repeals made by this section shall be construed to affect
the treatment of such transaction, property, or item for purposes of determining liability
for tax for periods ending after such date of enactment.”
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendment by Pub. L. 115-97, Sec. 13305(b)(1), effective for taxable years beginning after December 31, 2017.
Pub. L. 115-141, Div .T, Sec. 101(c), added the following transition rule:
“(2) TRANSITION RULE FOR QUALIFIED PAYMENTS OF PATRONS OF COOPERATIVES.—
‘‘(A) IN GENERAL.—The amendments made by this section shall not apply to a qualified
payment received by a taxpayer from a specified agricultural or horticultural cooperative
in a taxable year of the taxpayer beginning after December 31, 2017, which is attributable
to qualified production activities income with respect to which a deduction is allowable
to the cooperative under section 199 of the Internal Revenue Code of 1986 (as in effect before the amendments made by this section) for a taxable year
of the cooperative beginning before January 1, 2018. Any term used in this subparagraph
which is also used in section 199 of such Code (as so in effect) shall have the same
meaning as when used in such section.
‘‘(B) COORDINATION WITH SECTION 199A.—No deduction shall be allowed under section
199A of such Code for any qualified payment to which subparagraph
(A) applies.’’
Amendment by Pub. L. 115-97, Sec. 14202(b)(3), effective for taxable years beginning after December 31, 2017.
EFFECTIVE DATE OF 2014 AMENDMENTS
Amendments by Pub. L. 113-295, Div. A, Sec. 221(a), effective on the date of the enactment of this Act [Enacted:
Dec. 19, 2014]. Pub. L. 113-295, Div. A, Sec. 221(a)(41)(K), provided that:
“(K) The amendments made by this paragraph shall not apply to preferred stock issued
before October 1, 1942 (determined in the same manner as under section 247 of the Internal Revenue Codeof 1986 as in effect before its repeal by such amendments).”
Section 221(b)(2) of Pub. L. 113-295, Div. A, provided the following Savings Provision:
“(2)
SAVINGS PROVISION.—If—
“(A)
any provision amended or repealed by the amendments made by this section applied to—
“(i)
any transaction occurring before the date of the enactment of this Act [Enacted: Dec.
19, 2014],
“(ii)
any property acquired before such date of enactment, or
“(iii)
any item of income, loss, deduction, or credit taken into account before such date
of enactment, and
“(B)
the treatment of such transaction, property, or item under such provision would (without
regard to the amendments or repeals made by this section)
affect the liability for tax for periods ending after date of enactment, nothing in
the amendments or repeals made by this section shall be construed to affect the treatment
of such transaction, property, or item for purposes of determining liability for tax
for periods ending after such date of enactment.”
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendment by section 102(d)(5) of Pub. L. 108-357 applicable for taxable years beginning after December 31, 2004.
Amendment by section 331(g)
of Pub. L. 108-357 applicable for taxable years beginning after the date of the enactment of this Act
[Enacted: Oct. 22, 2004].
EFFECTIVE DATE OF 2002 AMENDMENTS
Amendments by section 412(a)
of Pub. L. 107-147 applicable as if included in the provisions of the Community Renewal Tax Relief Act
of 2000 [Pub. L. 106-554, Sec. 101] to which they relate.
EFFECTIVE DATE OF 2001 AMENDMENTS
Amendment by section 431(c)(3)
of Pub. L. 107-16 applicable to payments made in taxable years beginning after December 31, 2001.
Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358 and Pub. L. 111-312, Sec. 101(a), and struck by Pub. L. 112-240, Sec. 101(a)(1) (effective for taxable, plan, or limitation years beginning after Dec. 31, 2012,
and estates of decedents dying, gifts made, or generation skipping transfers after
Dec. 31, 2012), provided that:
“(a) IN GENERAL.--All provisions of, and amendments made by, this Act shall not apply--
“(1)
to taxable, plan, or limitation years beginning after December 31, 2012, or
“(2)
in the case of title V, to estates of decedents dying, gifts made, or generation skipping
transfers, after December 31, 2012.
“(b) APPLICATION OF CERTAIN LAWS.--The Internal Revenue Code of 1986 and the Employee
Retirement Income Security Act of 1974 shall be applied and administered to years,
estates, gifts, and transfers described in subsection (a) as if the provisions and
amendments described in subsection (a) had never been enacted.
“(c) EXCEPTION.-Subsection
(a) shall not apply to section 803 (relating to no federal income tax on restitution
received by victims of the Nazi regime or their heirs or estates).”
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by section 4003(a)(2)(D)
of Pub. L. 105-277 applicable as if included in the provisions of the Taxpayer Relief Act of 1997 to
which it relates.
EFFECTIVE DATE OF 1996 AMENDMENTS
Amendment by section 1704(d)(1)
of Pub. L. 104-188 applicable to taxable years beginning after December 31, 1986.
Amendment by section 1704(e)(1)
of Pub. L. 104-188 applicable to taxable years beginning after December 31, 1986.
Amendment by section 1807(c)(4)
of Pub. L. 104-188 applicable to taxable years beginning after December 31, 1996.
EFFECTIVE DATE OF 1993 AMENDMENTS
Amendments by section 13143 of Pub. L. 103-66 applicable to taxable years beginning after December 31, 1993.
EFFECTIVE DATE OF 1990 AMENDMENTS
Amendment by section 11813(b)(16)
of Pub. L. 101-508 applicable to property placed in service after Dec. 31, 1990, but not applicable
to any transition property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were previously taken into account
under section 46(d) of this title, and any property described in section 46(b)(2)(C)
of this title, as such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 29 of this title.
EFFECTIVE DATE OF 1989 AMENDMENTS
Section 7109(b) of Pub. L. 101-239 provided that:
‘(1) In general. - Except as provided in paragraph (2), the amendments made by this
section
(amending this section) shall apply to property placed in service after December 31,
1989, in taxable years ending after such date.
‘(2) Special rule where interest held in pass-thru entity. - In the case of a taxpayer
who holds an indirect interest in property described in paragraph (1), the amendments
made by this section shall apply only if such interest is acquired after December
31, 1989.’
EFFECTIVE DATE OF 1988 AMENDMENTS
Amendment by section 1005(a)(1)-(9),
(11), (12) of Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
Amendment by section 2004(g)
of Pub. L. 100-647 effective, except as otherwise provided, as if included in the provisions of the
Revenue Act of 1987, Pub. L. 100-203, title X, to which such amendment relates, see section 2004(u) of Pub. L. 100-647, set out as a note under section 56 of this title.
Amendment by section 6009(c)(3)
of Pub. L. 100-647 applicable to taxable years beginning after Dec. 31, 1989, see section 6009(d)
of Pub. L. 100-647, set out as a note under section 86 of this title.
EFFECTIVE DATE OF 1987 AMENDMENTS
Amendment by Pub. L. 100-203 effective as if included in the amendments made by section 501 of the Tax Reform
Act of 1986,Pub. L. 99-514, see section 10212(c) of Pub. L. 100-203, set out as a note under section 58 of this title.
EFFECTIVE DATE
Section 501(c) of Pub. L. 99-514, as amended byPub. L. 100-647, title I, Sec. 1005(a)(10), title IV, Sec. 4003(b)(2), Nov. 10, 1988, 102 Stat. 3388, 3644, provided that:
‘(1) In general. - The amendments made by this section (enacting this section) shall
apply to taxable years beginning after December 31, 1986.
‘(2) Special rule for carryovers.
- The amendments made by this section shall not apply to any loss, deduction, or credit
carried to a taxable year beginning after December 31, 1986, from a taxable year beginning
before January 1, 1987.
‘((3) Repealed. Pub. L. 100-647, title IV, Sec. 4003(b)(2), Nov. 10, 1988, 102 Stat. 3644.)
‘(4) Income from sales of passive activities in taxable years beginning before january
1, 1987.
- If -
‘(A)
gain is recognized in a taxable year beginning after December 31, 1986, from a sale
or exchange of an interest in an activity in a taxable year beginning before January
1, 1987, and
‘(B)
such gain would have been treated as gain from a passive activity had section 469 of the Internal Revenue Code of 1986 (as added by this section) been in effect for the taxable year in which the
sale or exchange occurred and for all succeeding taxable years, then such gain shall
be treated as gain from a passive activity for purposes of such section.'
DISPOSITION OF INTEREST IN PASSIVE ACTIVITY
Sec. 311(e)(5) of Pub. L. 105-34, as added by Pub. L. 107-147, Sec. 414(a)(2), provided that:
“(5) Disposition of interest in passive activity
“Section 469(g)(1)(A) of the Internal Revenue Codeof 1986 shall not apply by reason of an election made under paragraph (1).”
SAVINGS PROVISION
For provisions that nothing in amendment by section 11813(b)(16) of Pub. L. 101-508 be construed to affect treatment of certain transactions occurring, property acquired,
or items of income, loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods ending after Nov.
5, 1990, see section 11821(b) of Pub. L. 101-508, set out as a note under section 29 of this title.
AMOUNTS ATTRIBUTABLE TO ACTIVITIES SUBJECT TO LIMITATIONS UNDER SECTION 469 TREATED
AS DEDUCTION ALLOCABLE TO SUCH ACTIVITY
Section 1005(c)(11) of Pub. L. 100-647 provided that:
‘If -
‘(A)
any amount was disallowed as a deduction under section 163(d) of the Internal Revenue Code of 1954 (now 1986) (as in effect on the day before the date of the enactment of the
Reform Act (Oct. 22, 1986)),
‘(B)
such amount would (but for this paragraph) be treated as investment interest paid
or accrued by the taxpayer in the taxpayer's first taxable year beginning after December
31, 1986, and
‘(C)
the taxpayer makes an election under this paragraph at such time and in such manner
as the Secretary of the Treasury or his delegate shall prescribe, to the extent such
amount is attributable to an activity subject to the limitations of section 469 of
the 1986 Code, such amount shall not be treated as investment interest but shall be
treated as a deduction allocable to such activity for such first taxable year.
Subsection (m) of section 469 of the 1986 Code and section 501(c)(2) of the Reform
Act (Pub. L. 99-514, set out as an Effective Date note above) shall not apply to any amount so treated.'
TRANSITIONAL RULE FOR LOW-INCOME HOUSING
Section 502 of Pub. L. 99-514, as amended by Pub. L. 99-509, title VIII, Sec. 8073(a), Oct. 21, 1986, 100 Stat. 1965;Pub. L. 100-647, title I, Sec. 1005(b), Nov. 10, 1988, 102 Stat. 3389, provided that:
‘(a) General Rule. - Any loss sustained by a qualified investor with respect to an
interest in a qualified low-income housing project for any taxable year in the relief
period shall not be treated as a loss from a passive activity for purposes of section 469 of the Internal Revenue Code of 1986.
‘(b) Relief Period. - For purposes of subsection (a), the term ‘relief period’ means
the period beginning with the taxable year in which the investor made his initial
investment in the qualified low-income housing project and ending with whichever of
the following is the earliest -
‘(1)
the 6th taxable year after the taxable year in which the investor made his initial
investment,
‘(2)
the 1st taxable year after the taxable year in which the investor is obligated to
make his last investment, or
‘(3)
the taxable year preceding the 1st taxable year for which such project ceased to be
a qualified low-income housing project.
‘(c) Qualified Low-Income Housing Project. - For purposes of this section, the term
‘qualified low-income housing project’ means any project if -
‘(1)
such project meets the requirements of clause (i), (ii), (iii), or
(iv) of section 1250(a)(1)(B) (of the Internal Revenue Code of 1986)
as of the date placed in service and for each taxable year thereafter which begins
after 1986 and for which a passive loss may be allowable with respect to such project,
‘(2)
the operator certifies to the Secretary of the Treasury or his delegate that such
project met the requirements of paragraph (1) on the date of the enactment of this
Act (Oct. 22, 1986) (or, if later, when placed in service) and annually thereafter,
‘(3)
such project is constructed or acquired pursuant to a binding written contract entered
into on or before August 16, 1986, and
‘(4) such project is placed in service before January 1, 1989.
‘(d) Qualified Investor.
- For purposes of this section -
‘(1)
In general. - The term ‘qualified investor’ means any natural person who holds (directly
or through 1 or more entities) an interest in a qualified low-income housing project
-
‘(A)
if -
‘(i)
in the case of a project placed in service on or before August 16, 1986, such person
held an interest in such project on August 16, 1986, and such person made his initial
investment after December 31, 1983, or
‘(ii)
in the case of a project placed in service after August 16, 1986, such person made
his initial investment after December 31, 1983, and such person held an interest in
such project on December 31, 1986, and
‘(B)
if such investor is required to make payments after December 31, 1986, of 50 percent
or more of the total original obligated investment for such interest.
For purposes of subparagraph
(A), a person shall be treated as holding an interest on August 16, 1986, or December
31, 1986, if on such date such person had a binding contract to acquire such interest.
‘(2)
Treatment of estates. - The estate of a decedent shall succeed to the treatment under
this section of the decedent but only with respect to the 1st 2 taxable years of such
estate ending after the date of the decedent's death.
‘(3)
Special rule for certain partnerships. - In the case of any property which is held
by a partnership -
‘(A)
which placed such property in service on or after December 31, 1985, and before August
17, 1986, and continuously held such property through the close of the taxable year
for which the determination is being made, and
‘(B)
which was not treated as a new partnership or as terminated at any time on or after
the date on which such property was placed in service and through the close of the
taxable year for which the determination is being made, paragraph (1)(A)(i) shall
be applied by substituting
‘December 31, 1988’ for ‘August 16, 1986’ the 2nd place it appears.
‘(4)
Special rule for certain rural housing. - In the case of any interest in a qualified
low-income housing project which -
‘(A)
is assisted under section 515 of the Housing Act of 1949 (42 U.S.C. 1485) (relating to the Farmers' Home Administration Program), and
‘(B)
is located in a town with a population of less than 10,000 and which is not part of
a metropolitan statistical area, paragraph (1)(B) shall be applied by substituting
‘35 percent’ for ‘50 percent’ and subsection
(b)(1) shall be applied by substituting ‘5th taxable year’ for ‘6th taxable year’.
The preceding sentence shall not apply to any interest unless, on December 31, 1986,
at least one-half of the number of payments required with respect to such interest
remain to be paid.
‘(e) Special Rules. -
‘(1)
Where more than 1 building in project. - If there is more than 1 building in any project,
the determination of when such project is placed in service shall be based on when
the 1st building in such project is placed in service.
‘(2)
Only cash and other property taken into account. - In determining the amount any person
invests in (or is obligated to invest in) any interest, only cash and other property
shall be taken into account.
‘(3)
Coordination with credit. - No low-income housing credit shall be determined under
section 42 of the Internal Revenue Code of 1986 with respect to any project with respect to which any person has been allowed
any benefit under this section.'
(Section 8073(b) of Pub. L. 99-509 provided that: ‘The amendment made by subsection (a) (amending section 502 of Pub. L. 99-514, set out above) shall take effect as if included in section 502 of the Tax Reform
Act of 1986 on the date of its enactment (Oct. 22, 1986).')