Carried Interest Update

Over the last several months, CCIM Institute legislative staff has been monitoring the progression of H.R. 4213, a bill originally known as the Tax Extenders Package. The legislation aimed to extend jobless benefits and Bush-era tax credits, while at the same time creating new revenue sources in order to accommodate for the resulting loss of tax revenue. In particular, a key revenue source sought in the bill was a provision to change the tax treatment of carried interest from capital gains to ordinary income. This change in tax treatment would effectively raise taxes on profits earned through carried interest from 15% to as high as 39.5%.

Real estate partnerships are often organized as limited partnerships in which the limited partners provide capital and the general partner(s) provides operational expertise. When a partnership property is sold, the limited partners generally reap the profits in proportion to their capital investment. Often, however, the limited partners grant a profits interest to general partner(s). This profits interest is known as a "carried interest." A carried interest is designed to act as an incentive for a general partner to maintain and enhance the value of the real estate so that the operation of the property is a value-added proposition. The issue of carried interest is critical to both the recovery of commercial real estate, as well as the overall economic recovery.

In response to the proposed change in tax treatment of carried interest, CCIM Institute has made a priority of opposing the carried interest provision in H.R. 4213. On May 5, 2010, 265 members of CCIM Institute and IREM participated in a joint visit to Capitol Hill lobbying their federal lawmakers on issues affecting the commercial real estate industry. One of the key issues members presented to lawmakers was the issue of tax treatment of carried interest. Additionally, On May 14, 2010 and June 2, 2010, CCIM Institute initiated a Call to Action, urging members to contact their federal lawmakers and ask them to oppose the carried interest provision in the Tax Extenders Package. Following the Calls to Action, CCIM Institute legislative staff received an overwhelming number of emails and phone calls from members who had contacted their legislators and expressed their opposition to the bill.

On July 20, 2010, Senate lawmakers held their fourth vote on H.R. 4213, passing the legislation in a mostly party line vote of 60-40. CCIM Institute legislative staff is pleased to announce that the carried interest provision had been stripped from the final version of the bill, meaning the tax treatment of carried interest will remain unchanged. However, the carried interest issue may again surface this year.

CCIM Institute legislative staff would like to thank all who took action in contacting their members of Congress and expressing their position on the carried interest issue. Your actions have served to educate lawmakers regarding the negative economic impact posed by the legislation, preventing them from passing this dangerous bill. Thank you for taking action on this important matter.

CCIM Institute legislative staff will continue to update you on any future developments regarding this issue.