Page:United States Statutes at Large Volume 100 Part 3.djvu/437

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2245

amount allowable as a deduction in connection with personal property used in a short sale. "(4) NET INVESTMENT INCOME.—For purposes of this subsection— "(A) IN GENERAL.—The term 'net investment income' means the excess of— "(i) investment income, over "(ii) investment expenses. "(B) INVESTMENT INCOME.—The term 'investment income' means the sum of— "(i) gross income (other than gain described in clause (ii)) from property held for investment, and "(ii) any net gain attributable to the disposition of property held for investment, but only to the extent such amounts are not derived from the conduct of a trade or business. "(C) INVESTMENT EXPENSES.—The term 'investment expenses' means the deductions allowed under this chapter (other than for interest) which are directly connected with the production of investment income. "(D) INCOME AND EXPENSES FROM PASSIVE ACTIVITIES.—

Investment income and investment expenses shall not include any income or expenses taken into account under section 469 in computing income or loss from a passive activity. "(E) REDUCTION IN INVESTMENT INCOME DURING PHASE-IN OF PASSIVE LOSS RULES.—Investment income of the taxpayer

for any taxable year shall be reduced by the amount of the passive activity loss to which section 469(a) does not apply for such taxable year by reason of section 469(1). The preceding sentence shall not apply to any portion of such passive activity loss which is attributable to a rental real estate activity with respect to which the taxpayer actively participates (within the meaning of section 469(i)(6)) during such taxable year. "(5) PROPERTY HELD FOR INVESTMENT.—For purposes of this subsection— "(A) IN GENERAL.—The term 'property held for investment' shall include— "(i) any property which produces income of a type described in section 469(e)(l), and "(ii) any interest held by a taxpayer in an activity involving the conduct of a trade or business— "(I) which is not a passive activity, and "(II) with respect to which the taxpayer does not materially participate. "(B) INVESTMENT EXPENSES.—In the case of property described in subparagraph (A)(i), expenses shall be allocated to such property in the same manner as under section 469. "(C) TERMS.—For purposes of this paragraph, the terms 'activity', 'passive activity', and 'materially participate' have the meanings given such terms by section 469. "(6) PHASE-IN OF DISALLOWANCE.—In the case of any taxable year beginning in calendar years 1987 through 1990— "(A) IN GENERAL.—The amount of interest disallowed under this subsection for any such taxable year shall be equal to the sum of—

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