[Congressional Record Volume 145, Number 163 (Wednesday, November 17, 1999)]
[Extensions of Remarks]
[Page E2417]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                  REAL ESTATE FLEXIBILITY ACT OF 1999

                                 ______
                                 

                            HON. JIM McCRERY

                              of louisiana

                    in the house of representatives

                       Tuesday, November 16, 1999

  Mr. McCRERY. Mr. Speaker, today I am introducing legislation, the 
Real Estate Flexibility Act of 1999, to remove a present-law tax 
penalty that confronts individual real estate investors who wish to 
sell debt-encumbered property.
  This legislation is important to our Nation's real estate markets. It 
would provide real estate investors with flexibility in managing tax 
liabilities while at the same time allowing debt-strapped property to 
be put to its highest and best use.
  An example will help to illustrate the need for this legislation. 
Assume that an individual investor owns commercial investment real 
property that is valued at $100 and that is encumbered by debt of $90. 
The individual's basis in the property is zero. Assume that the 
individual wishes to enter the residential real estate market and that 
a buyer offers to purchase his commercial property for fair market 
value. Under the terms of the transaction, the buyer will assume the 
$90 of debt and will pay the individual $10 in cash.
  Under current tax law, the individual will be taxed not only on the 
cash received, but also on the discharged debt. In this case, the tax 
paid by the individual on the sale--as much as $25 in this case (taking 
into account tax on unrecaptured depreciation)--will exceed the $10 in 
cash the individual actually receives. Thus, selling the property would 
force the individual to come up with cash out of pocket to pay the IRS.
  In light of this disincentive, many individuals in this situation do 
not sell. Rather, they sit and hold. As a result, the underlying 
property does not pass into the hands of new owners who may be more 
likely to make improvements and put the property to its highest and 
best use.
  In these circumstances, I believe an individual taxpayer should be 
given flexibility to pay this tax liability when he or she has the 
necessary cash. The Real Estate Flexibility Act of 1999 would allow 
individuals wishing to sell debt-encumbered property to elect to pay 
tax on the sale only to the extent of the cash received; the individual 
would have to reduce basis in other property to the extent that gains 
are not taxed. In our example, the individual would pay tax of $10--
i.e., the amount of the cash actually received--upon disposition of the 
commercial real estate and would reduce his or her basis in other 
depreciable property by the amount of untaxed gain on the commercial 
property.
  I ask my colleagues to join me in supporting this important 
legislation.

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