Detail

Democrats Reintroduce Legislation to Tax Carried Interest At Ordinary Income Rate

  • March 22, 2019

Legislation to reform the taxation of carried interest was introduced on March 13 by Sen. Tammy Baldwin (D-WI) and House Ways and Means Committee member Bill Pascrell, Jr. (D-NJ).  (News releasesBaldwin and Pascrell)

Legislation to reform the taxation of carried interest was introduced on March 13 by Sen. Tammy Baldwin (D-WI) and House Ways and Means Committee member Bill Pascrell, Jr. (D-NJ). 

  • The Carried Interest Fairness Act of 2019 would reverse decades of partnership tax law by characterizing profits earned through certain investment partnerships as ordinary income.  The legislation would recast capital gains earned by some partners—including gain associated with the sale of appreciated real estate—as income taxable at the maximum individual rate.  The current top capital gains rate is 20 percent and the top tax rate on ordinary income is 37 percent.  
  • Similar legislation was introduced in the 115th Congress.  The 2017 tax overhaul included a change to carried interest taxation, increasing the length of time from one to three years that partners with a carried interest must hold their investment to qualify for long-term capitals gains treatment. (The Hill, March 13)
  • The Democrats’ carried interest bill is under consideration by congressional tax-writing committees as a possible revenue offset for separate legislation to extend temporary tax breaks that lapsed on Jan. 1, 2018.  According to one press report, when asked whether carried interest could be an offset for his tax bill, House Ways and Means Chairman Richard Neal (D-MA) responded, “I think you're on the right track."  (CQ password-protected, March 14)

The Real Estate Roundtable opposes proposals such as the Carried Interest Fairness Act.  General partners earning a carried interest in a real estate partnership bear significant risks beyond direct capital contributions.  These risks can include funding predevelopment costs, guaranteeing construction budgets and financing, and exposure to potential litigation over countless possibilities.