Posted on April 1, 2019
Lawmakers return to Washington, D.C., this week after spending time in their districts. Several measures have been introduced that are important to NAIOP and commercial real estate. The Carried Interest Fairness Act of 2019, introduced in the House by Rep. Bill Pascrell (D-NJ) and in the Senate by Sen. Tammy Baldwin (D-WI), aims to treat certain income currently taxed at the capital gains rate as ordinary income. This would be a major change, since the top capital gains rate is 20 percent and the highest rate on ordinary income is 37 percent.
Less than two years ago, Congress passed the Tax Cuts and Jobs Act of 2017 (TCJA), a law that NAIOP strongly supported. Lawmakers recognized that taxing carried interests at a lower rate than ordinary income provides the necessary incentive for entrepreneurs to undertake risks inherent in development. The provision was therefore kept in place in the new tax law, though a new three-year holding period was imposed. The three-year holding period was intended to ensure that “carried interests” were used primarily for longer-term capital assets.
NAIOP has opposed changes to the taxation of real estate carried interests, and is working with its real estate allies to educate lawmakers in both the House and Senate on the changes already made to carried interest taxation.