1993 Tax Act and Real Estate Page: 7
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Alternative Minimum Tax
Increases
The alternative minimum tax (AMT) is
intended to increase the tax liability of taxpay-
ers who receive large benefits from certain
"tax preference" provisions in the tax law.
These provisions include rapid depreciation,
incentive stock options and deductions such as
property taxes and miscellaneous itemized
deductions. Prior to the 1993 Tax Act, the
AMT tax rate for individuals was 24 percent.
(Prior to the 1990 Tax Act, the alternative
minimum tax rate was 21 percent.) The new
law replaces the single rate with a two-tier rate
structure starting in 1993, as follows:Base
$0 - $175,000
More than $175,000Rate
26 percent
28 percentTaxpayers who benefit from tax preferences
such as those just noted are required to
compute two tax liabilities-one using the
regular tax method (partially illustrated by
Table 2) and the other using the AMT method.
Briefly, the AMT method includes virtually all
of the income of the regular method plus tax
preferences and certain other adjustments. Inessence, the taxpayer must pay the higher of
the two tax liabilities.
The increase in the AMT rate will undoubt-
edly cause more taxpayers to be subject to the
AMT than under prior law. Thus, there is now
a greater need to include the effects of the
AMT when performing tax planning and
investment analyses.
Passive Loss Rules Eased
Starting in 1994, losses and credits from
certain real estate activities are no longer
disallowed by the "passive activity limitation"
rules. The new relief is designed especially for
real estate brokers, salespersons and other real
estate professionals. As explained later,
eligibility requirements focus on demonstrat-
ing material involvement in real estate busi-
nesses. The chief benefit of the new rule is that
eligible taxpayers can deduct unlimited real
estate activity losses from active income (e.g.,
wages, salaries, commissions, self-employment
income) and portfolio income (e.g., interest
and dividends).
Under prior law, all rental activities (includ-
ing real estate rentals) were generally treated
as passive activities regardless of the level of
the taxpayer's personal involvement. Losses7
Figure 2. Effective Tax Rates for Single Taxpayers
(Years Ending 1992, 1993 and 1994 with 100 Percent
Self-Employment Income)
45.0 -- 45.0
Y 40.0-- 40.0
35.0-- 35.0
30.0 30.0
25.0 25.0
20.0 -----1992 20.0
15.0 --_-- 15.0
* 10.0 1993 10.0
5.0 -n-994 5.0
0.0 - I 0.0
o o 0 0 0 0 0 0 0 0 0 0 0 0 0
o o 0 0 0 0 0 0 0 0 0 0 0 0 0
Gr os C Cn Ccmn
Gross Income
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Stern, Jerrold J. 1993 Tax Act and Real Estate, report, August 1994; College Station, Texas. (https://texashistory.unt.edu/ark:/67531/metapth1588910/m1/11/: accessed July 17, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.