Pre-enactment interest refers to a taxpayer's stake in a passive activity that they held on the date the Tax Reform Act of 1986 was enacted, which was October 22, 1986. This interest must have been maintained continuously from that date onward. Essentially, it signifies interests in activities that were already in existence at the time of the law's enactment.
This term is primarily used in tax law, particularly in relation to passive activities and their treatment under the Internal Revenue Code. Taxpayers may encounter pre-enactment interest when determining their tax liabilities or when filing tax returns that involve passive activities. Understanding this term can help users navigate tax forms and procedures, especially those related to passive income and losses.
Here are a couple of examples of abatement:
(Hypothetical example) A taxpayer owned a rental property that they managed as a passive activity on October 22, 1986. Their interest in this property is considered a pre-enactment interest. If they later acquired another rental property after this date but under a binding contract that was in effect on October 22, 1986, that interest may also qualify as a pre-enactment interest.
The primary statute governing pre-enactment interest is found in the Internal Revenue Code, specifically under 26 USCS § 469. This section outlines the rules surrounding passive activities and the treatment of interests held by taxpayers.
| Term | Definition | Difference |
|---|---|---|
| Passive Activity | An activity in which the taxpayer does not materially participate. | Pre-enactment interest specifically refers to interests held before the Tax Reform Act of 1986. |
| Active Participation | Involvement in an activity that significantly contributes to its operation. | Active participation differs from pre-enactment interest, which can include interests in passive activities. |
If you believe you have pre-enactment interests, review your tax records to confirm the dates and nature of your investments. Consider using US Legal Forms' templates to assist with tax filings related to passive activities. If your situation is complex, it may be wise to consult a tax professional for tailored advice.
A passive activity is one in which the taxpayer does not materially participate, such as rental properties.
