Senate leaders have tabled, for now, a bill extending several popular tax credits (including some of interest to apartment firms) that is partially paid for by increasing the tax rate on "carried interest" or a developer's "promote." The House passed its tax extenders bill (H.R 4123), with a carried interest tax increase, in late May.

Last night, the Senate failed for a third time to secure the 60 votes needed to move the measure forward even after scaling the package down from adding roughly $100 billion to the deficit to just $35 billion.   As part of those changes, Senator Max Baucus (D-MT) twice modified the carried interest proposal to try to make it more palatable to real estate partnerships.

The latest iteration would have taxed 75% of a carried interest at ordinary income rates and 25% at capital gains rates as of 2011.  A carried interest attributable to assets held for at least five years would have been taxed at a 50-50 split.  The language was also modified to exempt family partnerships who allocate carried interests on a pro-rata basis from the tax law change.  Those partnerships would have continued to be taxed at capital gains levels. 

While the most immediate threat appears to have passed, NMHC/NAA remain vigilant as the Senate could take up the extenders bill again in the fall, and carried interest remains a possible "pay for" for other forthcoming legislation. 

For months, NMHC/NAA mounted an aggressive campaign to oppose the carried interest tax increase. We worked directly with key members of Congress to urge a more reasonable ordinary income/capital gains split, arguing that the latest deal will still drive many private developers of affordable rental housing out of the market because the risk/reward ratio has been so dramatically changed for the worse.

In mid-June, NMHC's Carried Interest Task Force leaders Jeff Stack and Tom Moran joined NMHC/NAA staff to meet with several Senators to personally make the case against this onerous proposal. We also published several high-profile full-page ads in Roll Call and Politico, two of the most widely read publications on Capitol Hill.

We thank all of our members who responded to our call to action and contacted their Senators.  Your calls and letters did help make a difference.  We will continue to educate lawmakers against this ill-advised tax law change.