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In 1976, Congress revised section 163(d) to reduce the use
of this deduction to shelter noninvestment types of income.12
See sec. 209(a) of the Tax Reform Act of 1976 (TRA 1976), Pub. L.
94-455, 90 Stat. 1520, 1542. The definition of investment income
remained unchanged, but the TRA 1976 amendment eliminated any
offset of investment interest expense against long-term capital
gain. Id.
In 1986, Congress expanded the scope of the investment
interest expense limitation and altered the calculation of the
limitation by including “any net gain attributable to the
disposition of property held for investment”. Sec. 511(a) of the
Tax Reform Act of 1986 (TRA 1986), Pub. L. 99-514, 100 Stat.
2085, 2320; see H. Conf. Rept. 99-841 (1986), 1986-3 C.B. (Vol.
4) 152, wherein the conference committee articulated the intent
to expand the definition of investment income “to include the
same items as under * * * [TRA 1976] plus the taxable portion of
net gain from the disposition of investment property.”13
(Emphasis added.) The TRA 1986 amendment allowed capital gains
12See H. Rept. 94-658 at 102, 1976-3 C.B. (Vol. 2) 695, 794;
S. Rept. 94-938 at 106, 1976-3 C.B. (Vol. 3) 49, 144; Staff of
Joint Comm. on Taxation, General Explanation of the Tax Reform
Act of 1976 at 103 (J. Comm. Print 1976).
13See also H. Rept. 99-426, 1986-3 C.B. (Vol. 2) 300
(“[investment income] also includes the nondeductible portion of
net long-term capital gain on investment property.”); S. Rept.
99-313, 1986-3 C.B. (Vol. 3) 805 (“[investment income] also
includes the gain on investment property.”).
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