CRE Ponders Presidential Tax Proposals

WASHINGTON, DC-The real estate community breathed a sigh of relief last year when provisions to change the tax characterization of Carried Interest failed to make their way into the tax code. Under an Obama Administration, though, there is a significant possibility that a similar proposal might well be realized.

To recap the issue briefly, Carried Interest is the percentage of a fund’s, joint venture’s or limited partnership’s profits that a general partner takes as compensation. Such profits are taxed at capital gains rates–15%–as opposed to ordinary income, which can be as much as 35%.

Carried Interest caught the attention of Congress last year after Blackstone co-founder Stephen A. Schwarzman received $600 million in Carried Interest when the firm went public. Bills were introduced to treat income received by partners for performing investment management services as ordinary income, that is, for it to be taxed at 35% instead of 15%. Such a change would affect private equity and financial firms as well as real estate development partnerships.