As lawmakers in Washington mull legislation that will affect the tax treatment of carried interest, a standard form of compensation for general partners in limited partnerships and limited liability corporations, commercial real estate pros are debating whether the legislation makes sense and how much of an impact it will have, should it come to pass.
The proposed legislation would treat part or all of a partnership’s carried interest as regular income, as opposed to a capital gain. The legislation is primarily aimed at private equity funds and venture capitalists, but would have a huge knock-on effect on commercial real estate since many property
For example, if the partnership buys a
If the legislation passes, the tax rate on carried interest would rise from the current 15 percent to 35 percent—the current highest income tax rate. However, should President Obama go through with the plan to let Bush-era tax cuts expire in 2011, the tax rate would be even higher—39.6 percent. Many industry trade groups, including ICSC, have made the case that higher taxes on carried interest would make real estate transactions less attractive and derail the nascent recovery in the commercial real estate market.