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Carried Interest Versus Default

WASHINGTON, DC-Everything is on the table for the deficit reduction talks, including changing the tax characterization of carried interest. Should the commercial real estate industry be worried?

By Erika Morphy | Updated on July 06, 2011

WASHINGTON, DC-Carried interest, it appears, has been placed on the table in the ongoing negotiations between Congressional Democrats and Republicans and the White House over the budget deficit and the debt ceiling. The negotiations are expected to come to a head on August 2nd. Some Democrats and the White House, according to news accounts, want to change the tax characterization of carried interest, which currently allows hedge fund and private equity managers to pay a 15% capital-gains rate on their earnings. Republicans, not surprisingly, are against the move.

Carried interest also played a similar role in the negotiations over last year’s $848 billion tax cut package, but the proposal to change its characterization was eventually tabled. At least those negotiations were somewhat transparent–the budget deficit talks are being held behind closed doors, with the occasional partisan sound bite released to the media, leaving the commercial real estate industry to dark ruminations about what might emerge. Still, it is to be expected that carried interest would be on the table, Jeff DeBoer, the Real Estate Roundtable’s CEO and president, tells GlobeSt.com. Indeed in May, the Roundtable and Deloitte released a joint report on the tax issues most important to commercial real estate that were likely to become part of the negotiations. Besides carried interest, FIRPTA reform and the many elements that make up the tax extender package passed each session were identified.

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