WASHINGTON, DC-Congressional plans to tax private equity carried interest as regular income–a measure that would have a huge impact on real estate partnerships as well–are slowly moving forward. Yesterday, Ways and Means Committee Chairman Rep. Charles B. Rangel introduced a comprehensive tax plan that would, among other measures, more than double, to 35%, the tax rate on carried interest. Currently, it is taxed at 15%. Carried interest is the percentage of a fund, JV or limited partnership's profits that a general partner takes as compensation. Such profits are taxed at capital gains rates as opposed to ordinary income, which can be as much as 35%.

Not surprisingly, representatives from the real estate and financial communities have voiced strong protest against the proposal. The Building Owners and Managers Association (BOMA) International, for instance, says that taxing returns from carried interests at ordinary income rates will disrupt the investment relationship between entrepreneurs and their capital finance partners.

“The significance of this change will be felt most noticeably on 'Main Street' and in underserved cities and neighborhoods that require developers to take up-front risks in exchange for future profits in tough economic areas,” says BOMA International chairman and CEO Brenna S. Walraven, who is also executive managing director, national property management at USAA Real Estate Co. “In short, this huge tax increase would have profound unintended consequences to the 1.5 million workers directly employed by the real estate industry and the nation's 800,000 construction workers.”