Senate Finance Committee Ranking Member Ron Wyden (D-OR) introduced legislation on May 23 targeting carried interest. While legislation introduced to date has sought to tax real estate income attributable to a carried interest at capital gains tax rates – as opposed to ordinary income tax rates – the Wyden legislation goes substantially further.
The Wyden proposal would force partners holding a carried interest to pay taxes annually on so-called deemed compensation instead of being able to defer taxes until assets are sold. Partners would receive a long-term capital loss on their deemed compensation amount that could be used to offset capital gains when the underlying assets are ultimately liquidated.
NMHC and NAA strongly oppose the Wyden proposal. The multifamily industry has long held that carried interest should be taxed as a capital gain because of the substantial risk involved in developing multifamily real estate. The Wyden legislation is especially detrimental because it punishes real estate development by imposing an annual tax on deemed compensation. Significantly, such a tax on deemed income could, in some cases, be a tax on income that is never realized if a project is not profitable.
While carried interest legislation has little chance of progress, NMHC and NAA are vigilant and educating members about the significant and negative impact such a measure would have on multifamily real estate development.
Additional resources specific to this bill can be found below:
To learn more about our advocacy efforts on this topic, please visit our carried interest webpage.
- ACTION Coalition Letter to Treasury Regarding Community Development Tax Incentives
- Carried Interest
- Treasury, IRS Issue Guidance Related to LIHTC Relief Requirements
- NMHC Urges Treasury and IRS to Issue Final Regulations for Average Income Test Option Under the LIHTC
- Coalition Letter Regarding LIHTC Average Income Test