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Abstract

Enactment of the passive activity loss rules in 1986 was motivated by a desire to curb tax shelter abuses and to correct the misallocation of resources caused by tax-induced investment in agriculture and elsewhere in the economy. Thus, it is not surprising that the provisions have caused economic pain. One provision, involving the deduction of up to $25,000 for losses attributable to "rental real estate activities," has led to taxpayer confusion and uncertainty for their tax advisors.

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