The apartment industry and a coalition of other real estate groups urged Congress to reject further increasing taxes on carried interest through a letter sent on March 26. The House Ways and Means Committee is considering holding a markup of tax legislation as soon as April 2, and a revenue offset that would tax all carried interest as ordinary income as opposed to a capital gain was under discussion as a potential pay for. At the moment, NMHC and NAA do not believe carried interest will be a part of a markup, but this proposal could re-emerge in the future.
As we reported March 15, Representative Bill Pascrell (D-NJ) introduced legislation to tax carried interest as ordinary income. NMHC and NAA strongly oppose this proposal and the devastating impact it would have on the development of multifamily housing and on housing affordability throughout the nation.
Carried interest should receive capital gains tax treatment because it represents a return on an underlying, long-term capital asset, as well as risk and entrepreneurial activity. This is in contrast to any fees that managing partners receive in payment for operations and management activities, which are taxed as ordinary income.
A higher tax rate on long-term capital gains will discourage real estate partnerships from investing in new construction at a time when demand for apartments continues to grow and chronic underbuilding has limited new housing supply as shown by research commissioned by NMHC and NAA and conducted by Hoyt Advisory Services that found that the nation will need 4.6 million new apartments by 2030.