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Press-Republican—Tuesday, August 14,1984 1 1 Conflicts seen as abundant in new tax law (Editor's note: This is the se- cond part of a six-part series on the consequences to taxpayers of the new tax legislation passed in- to law on July 18.) By SYLVIA PORTER The more I try to unravel the 1984 tax\law the inoiNeXBecomT^ vinced that the Reagan ad- ministration has handed us a monstrosity — legislation loaded with hundreds of conflicting com- plexities. And the more I hear from outside sources the more I am astounded that weeks after the law's signing, top tax experts are still struggling to figure out what its clauses mean. Nevertheless, with the help of Prentice-Hall, in this series I'm giving you top hints. Real estate, for instance, still emerges as a Your Money's Worth for property placed in service after March 15,1984. A major exception is low- income housing for which the write-off period remains 15 years. It wasn't long ago that depreciation was based on a pro- perty's actual, useful life — which ranged up to 40 years for So even with an 18- suitable to you within a period of, say, five years. The deal was closed when the actual tax-free exchange was made. But effec- tive for transfers after this law's enactment date (last month), you get tax-free treatment only a) the property suitable to you four-way tax shelter — even though the tax shelter breaks have taken on entirely new looks because of this truly astounding law. 1) Depreciation. Before the new law, you could depreciate real property placed in service after 1980 over a fast, audit-proof 15 years. Under the new law, the depreciation period is 18 years Bill aims to speed marketing of drugs and protect patents Wall Street Journal-ONS WASHINGTON - A com- promise bill approved by the Senate would speed the marketing of generic drugs whose patents have expired, while granting longer patent pro- tection for brand-name drugs. The bill, expected to lower the prices of many popular drugs, is likely to be passed by the House soon. The White House endorsed the Senate version last week. The bill is the culmination of years of efforts by the $700 million-a-year U.S. generic drug industry to get faster access to patented products developed by the $15 billion-a-year brand- name prescription drug in d us try. Under the legislation, about 150 prescription drugs whose patents have expired or will expire in the next three years could become available as generic products. Annual sales of drugs in these categories total about $4 billion a year. Among the drugs whose ex- clusive rights will expire in the next few years are Inderal, an American Home Products Corp. heart drug with annual prescrip- tion sales of $340 million, and Valium, the Hoffmann-LaRoche Inc. tranquilizer with sales of $290 million. The bill directs the U.S. Food and Drug Administration to establish a relatively simple pro- cedure for makers of generic products to show that a drug pro- posed for marketing is a biochemical duplicate of the patented version. Current FDA procedures com- monly require generic com- panies to undertake lengthy animal studies and file extensive documents — a costly process that can take five years and often discourages marketing of a generic competitor for a patented prescription drug. The bill also would overrule a federal appeals court decision earlier this year that bars com- panies from starting FDA clearance tests for a generic ver- sion of a drug before the patent on the drug has expired. The generic drug industry claimed .that, if allowed to stand, the court ruling could delay the marketing of a generic drug by 18 months or longer. Prescription drug makers, for their part, would get longer patents under the bill as compen- sation for the time they spend negotiating FDA drug-clearance procedures. Although generic companies dispute the figure, the \pioneer\ drug companies claim as much as eight years of a drug's 17-year patent term can be used in such negotiations. Under the compromise bill, a patent holder could receive as much as a five-year extension, allowing a maximum exclusive market of 14 years. The compromise grew out of negotiations involving the Phar- maceutical Manufacturers Association, representing the brand-name industry, and the Generic Pharmaceutical In- dustry Association. Rep. Henry Waxman (D-Calif.) chairman of the Health subcommittee, and Sen. Orrin Hatch (R-Utah), chairman of the Labor and Human Resources Committee, also took part in the discussions. IIIOI'WI I < <MII S SUEiVANCHAK OIKMWMWAGIK MANAGE** INTRODUCTOKYSPECIALS OPEN 24 HOURS A DAY 3UCom«n«St. 563-7340 Ptettsfcwrgli, H.Y year write-off period, you still can write off property in less than half the time. Effective date: property plac- ed in service after March 15, 1984. 2) Leverage: You are often able to buy income property with a low down payment — and bor- row the rest. However, your tax deductions, including deprecia- tion, are figured on the full pur- chase price. Result: Leverage multiplies real estate's profit potential* and its tax shelter potential. The new law does not change the fundamental ad- vantages you get with leverage. 3) Tax-free swaps: If you swap business or investment property for similar property of equal value, there is no tax on the ex- change. You pay the tax when you sell the new property. That basic tax-free swap technique is untouched by the new law. But the new law does crack down on so-called deferred ex- changes. Before, you could im- mediately transfer property to another party and specify that the other party find property is identified within 46 days after—phantom income, Effective f It's common for you, a seller, to take back a first or second mor- tgage when selling a commercial or investment property. But under the new law, if a big amount of the sales price would be ordinary income, that could turn into a disaster. You would be badly hurt with IU you relinquish your property; and b) you take title to the property within 180 days after you relin- quish your property, or by the due date of your tax return (I n c I u dIng extensions), whichever is earlier. TIP: When the contract is drawn, set a dosing, date far enough in advance so that the other party has time to locate property you want. Effective date: In general, transfers of property after date of law's enactment. Special grace period: Where exchange property has been identified in a binding written contract entered into before June 14, 1984, the ex- change property must be receiv- ed before Jan, 1.19S9. ~ 4) Capital gains: If you sell real estate at a profit after you've held it long enough, all of it is low-tax capital gain if you use straight-line depreciation. If you used accelerated deprecia- tion, though, some of your gain may be treated as fully taxed or- dinary income. Change for installment sales: installment sales after June 6, 1984, sales profit treated as or- dinary income is taxed in full in the year of sale — whether or not you receive payments. a) Try to help your buyer get a commercial mortgage. You'll have to pay tax on ordinary in- come, but youMl have the cash to pay it with. b) If you must take back a mor- tgage, try to get as large a down payment as possible, so you're noil, in frffprt, a lpndfir on the building and are forced to be a borrower to pay the tax. 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