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From: pagiven@drutx.UUCP (GivenP)
Newsgroups: net.taxes
Subject: re: Real Estate Taxes and Tax Reform
Message-ID: <2910@drutx.UUCP>
Date: Thu, 30-May-85 14:47:12 EDT
Article-I.D.: drutx.2910
Posted: Thu May 30 14:47:12 1985
Date-Received: Sat, 1-Jun-85 13:06:53 EDT
Organization: AT&T Information Systems Laboratories, Denver
Lines: 35


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Susan Slusky questions how the real estate tax (and,  by  the  way,
perhaps  mortgage interest?) deduction on rental property will work
under the proposed tax system:

>Also, what would be the implications for evaluating the taxable
>income from rental property? Would real estate tax on rental
>property be allowed to offset rent receipts? It would seem that
>in such a case the real estate tax is a business expense just
>like repairing the roof would be.

I simply cannot see how it could be otherwise.  Imagine  businesses
not  being  able  to  take these items as expenses offsetting gross
income?  Again, rationality need not prevail when the IRS gets into
the  act.   But if taking such taxes (and mortgage interest if they
ever disallow that  sacred  cow)  as  expenses  were  permitted  to
businesses,  as  logic  dictates, then imagine this:  Create a sub-
chapter S corporation for real estate holdings and management.  XYZ
corp.  then  buys  your  home.  You pay XYZ corp $1 per month rent.
XYZ corp. shows a  substantial  loss  for  the  year  ($12  income,
thousands  in expenses).  The loss is distributed to you to show on
your personal income taxes.  VOILA! taxes and interest  become  tax
deductions.   To  be sure that XYZ corp. does not permanently incur
loss, subsume this scheme (scam?) into an otherwise profitable com-
pany.

Since operating companies for purposes of generating loss  is  con-
sidered  to  be  fraudulent  by  the  IRS, I am not advocating this
arrangement.  It is, as the physicists say, a thought experiment.

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 Paul Given             {ihnp4, houxe, stcvax!ihnp4}!drutx!pagiven
              AT&T Information Systems Laboratories
 11900 N. Pecos, Rm 1B04, Denver 80234              (303)-538-4058
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