Real Estate Coalition Urges Debt Negotiators to Drop Carried Interest Tax Hike that Would Stifle Job Creation
WASHINGTON – The undersigned real estate organizations urge Congress to reject an increase in taxes on partnership carried interest that would encumber job creation and halt economic recovery. In an attempt to help close the budget deficit, lawmakers are considering treating carried interest as ordinary income (taxed at up to 35 percent) rather than as capital gain (subject to a top rate of 15 percent).
Such an increase could derail a real estate recovery by disproportionately impacting small to medium sized real estate partnerships that rely on carried interest to make up for the substantial risks and liabilities associated with long-term real estate ownership and development.
The proposed tax increase on carried interest would overturn more than 60 years of partnership tax law and would significantly curtail commercial real estate activities. Nearly half of all investment partnerships in America are real estate partnerships, which are key drivers of job creation and economic development in communities across the country.
When Congress considered raising the tax rate on carried interest last summer, both the U.S. Conference of Mayors and the National Association of Counties passed resolutions urging Congress to maintain the current law as it relates to real estate partnerships because of its negative impact on state and local taxes.
An increase in the carried interest tax rate will result in:
*Fewer jobs. The tax increase will threaten millions of jobs that are made possible by real estate development projects.
*Fewer economic development projects. Projects with brownfields, mixed-use or affordable and workforce housing components will be the hardest hit because developers use carried interest as the return for shouldering the tremendous risks and liabilities associated with these types of real estate projects, including environmental concerns, operational shortfalls, construction delays and loan guarantees.
*Fewer small investors. At a time of global deleveraging, proposals to more than double the tax rate on carried interest would encourage more debt vs. equity—for those even able to obtain loans from institutions. Small investors—key job creators—typically do not possess the capital to leverage and will likely not enter into commercial real estate development.
*Less tax income at the state and local level. Higher effective tax rates will cause real estate owners to hold on to existing holdings, significantly undermining redevelopment of underutilized properties and curtail new real estate development, reducing transaction-related taxes at every level.
Real Estate Coalition:
American Hotel & Lodging Association, American Resort Development Association, American Seniors Housing Association, Building Owners and Managers Association (BOMA) International, CCIM Institute, CRE Finance Council, Institute of Real Estate Management, International Council of Shopping Centers, Mortgage Bankers Association, NAIOP – The Commercial Real Estate Development Association, National Apartment Association, National Leased Housing Association, National Multi Housing Council and The Real Estate Roundtable.
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