A Review Of Tax Shelter Investments After The Economic Recovery Tax Act Of 1981 - Discussion Outline

I. Changes made by the Economic Recovery Tax Act of 1981 (ERTA) which have an effect on investing in tax shelter investments A. Maximum ordinary income tax rate on individuals is now 50%. B. Maximum tax rate on long-term capital gains for individuals is now 20%. C. Maximum tax rate on alternative minimum taxable income for individuals is now 20%. D. Although not changed, the "add-on" 15% minimum tax on tax preference items and the possibility of paying the alternative minimum tax cause individual U.S. income tax planning to continue to be very complex. II. Real Estate A. The new Accelerated Cost Recovery System of depreciation (ACRS). 1. Mandatory for assets placed in service after 1980. ACRS will eliminate most if not all controversies with the IRS over depreciation. 2. Real property now depreciated over 15 years. Component depreciation is not available. 3. Accelerated depreciation is available - a 175% declining balance method with an automatic shift to straight line method at the optimum point in the asset's life. Alternatively, a taxpayer can elect to use the straight line method.