From John Johnson, CCIM - Atlanta, GA | It has recently been made aware that the U.S. House of Representatives is likely to consider a tax increase on real estate partnerships next week with the U.S. Senate following the week of May 24th. If this legislation passes through the House and Senate, we expect it to be signed into law before Memorial Day. ICSC (International Council of Shopping Centers) recently reported to its members:
The carried interest proposal would increase the taxes on a general partner’s promote or sponsor’s share from the current capital gains rate of 15% to the ordinary income rate of 35%. In addition to the tax rate increase, one of the biggest concerns about the legislation is that gains from a partnership would be re-characterized as ordinary income. As a result, not only would the tax rate go to the 35% ordinary income rate (possibly 39.6% in 2011), but the income would also be treated as compensation and subjected to employment-related taxes, such as Social Security and Medicare, as well as additional state taxes. Furthermore, capital losses would no longer be able to offset separate gains. It is critical that Congress preserve the ability to offset and the current character of gains from partnerships, otherwise the impact will be devastating to real estate entrepreneurs.
Although the House has voted for this tax increase three times before, it is important to contact to contact House Representatives again to make them fully aware of all the ramifications associated with a vote that supports a permanent carried interest tax increase to offset numerous temporary tax incentives.
Based on intelligence we have received thus far, the Senate continues to be the pressure point. There is no reported widespread agreement or consensus in the Senate with the House approach. Unlike the House, the Senate has not held a vote on this tax increase, and several Senators have expressed serious concern about it. We know much of these reservations are the result of your communications to your Senate offices. In short, keep it up. We need to continue to stir the pot and most importantly, ask your Senators to communicate their reservations to Senate Finance Chairman Max Baucus (D-MT), who oversees the bill, so that he is aware of the opposition.
Though this is a political issue, it could significantly affect many clients and investors. Call your representative and make your voice heard if this is something that could make a difference in your investment strategy. ICSC has provided a sample letter and email form to both House and Senate representatives, including the point:
The current tough economic environment is already stalling new real estate projects, but this increase, if enacted, will likely kill them altogether. With the commercial real estate industry under serious strain due to the current credit crisis, raising this anti-investment tax on real estate will not only threaten economic development projects and related jobs, but is will also hit small and medium sized developers the hardest.
Please click HERE if you would like to send a message to your representatives through this channel. The form letter can be edited to personalize the message.
Tags: 2010, carried interest, Commercial Real Estate, economy, house of representatives, investments, investors, law, legislation, national, partnerships, politics, real estate, senate, tax increase