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 (HR 4123), with a carried interest tax increase, in late May.
On June 24, 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 percent of a carried interest at ordinary income rates and 25 percent 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 that 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, NAA/NMHC 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, NAA/NMHC 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, key apartment industry leaders and NAA/NMHC staff met with several Senators to personally make the case against this onerous proposal. NAA/NMHC purchased and published several high-profile full-page ads in Roll Call and Politico, two of the most widely read publications on Capitol Hill.