The Uncertain Future of Carried Interest Tax

Posted on September 6, 2017

The future of tax reform remains unclear as Labor Day approaches. However, the White House is indicating it plans to step back and allow lawmakers to take the lead this fall. “The White House does not plan to release its own version of a tax reform plan and will instead leave that to the congressional leadership and the major tax-writing committees,” Politico reports, citing an administration source.

One issue that may be on the table is the current tax treatment of carried interest as capital gains.

During an event in Louisville with Senate Majority Leader Mitch McConnell, Treasury Secretary Steven Mnuchin hinted the administration might be open to preserving the current status of carried interest for certain activities that result in long-term capital investment and assets. “We will close the loophole for hedge funds in carried interest. What we are focused on is there are many other types of funds that do create jobs and we want to make sure we don’t discourage investment,” he said.

That position is in line with the plan put forward by Representative Dave Camp of Michigan, the former chair of the House Ways and Means Committee, who eliminated capital gains tax treatment for carried interest but provided a “carve out” for real estate.

NAIOP supports overall tax reform that reduces rates and boosts economic growth. However, the association opposes a change in the tax treatment of carried interest that would result in an increase in tax rates from capital gains to ordinary income rates. Such a change would reduce incentives for entrepreneurs to undertake the risks inherent in development, and would limit the flow of investment capital to the real estate industry. NAIOP is working with lawmakers, their staff members and administration officials to protect the current treatment of carried interest in commercial real estate.

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