against nonfarm income by high income taxpayers in 

 competition with full-time, family-size farm 

 operations. ^ His bill, S. 244, was supported by the 

 Farm Bureau, Farmers Union, American Agricultural 

 Movement, National Farmers Organization, National 

 Grange, Women Involved in Farm Economics, and other farm 

 organizations. The concept of the bill also was 

 endorsed by the National Governors' Association.'" 



The federal Tax Reform Act of 1986, Pub. L. No. 

 99-514, contains new limitations on the deduction of 

 losses from passive farming activities. Such passive 

 farming activities include the conduct of any trade or 

 business, or any investment activity, in which the 

 taxpayer does not materially participate. 



Under the Tax Reform Act, losses from a passive 

 farming activity may be deducted only against the income 

 from other passive activities. Passive losses may not 

 be used to offset income from active sources, such as a 

 business or profession actively carried on by the 

 taxpayer, or against portfolio income. Passive losses 

 that cannot be used in any tax year may be carried over 

 to future years but continue to apply only to passive 

 income.'' 



A special rule applies to rental activities. The 

 rule provides a $25,000 allowance for losses from rental 

 activities, including the rental of real estate for 

 agricultural purposes. This $25,000 allowance is phased 

 in for any taxpayer whose income exceeds $100,000. 



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