Washington, DC – December 14, 2009 – (RealEstateRama) — Congresswoman Ileana Ros-Lehtinen, a senior member of the Florida Congressional Delegation, voted against the tax increases in the Tax Extenders Act of 2009, as these increases would harm the already-stressed commercial real estate market. The legislation includes a $24.6 billion permanent tax increase on investments in the midst of a recession.
This bill would increase the tax rate on so-called “carried interest” on investment partnerships by treating carried interest as normal income and taxing it at the standard income tax rate (currently 35 percent) rather than the capital gains rate (currently 15 percent). This would result in a 233% tax increase on partnership fund managers who are key risk takers in job producing investments. “Carried interest” is when partnership fund managers receive a percentage of the fund’s annual earnings.
Tax increases on such investments will discourage the entrepreneurial risk-taking that is crucial to economic growth and job creation. Also, this $24.6 billion permanent tax increase should not be used to offset temporary tax relief. Below are some of my main concerns in this tax bill.
• The provision affects investment funds, which include most real estate ventures organized as LLCs.
• Unlike private equity funds, “carried interest” in a real estate project is not compensation for services and furthermore is not guaranteed income for the general partner.
• An increase in this tax will further strain an already weakened commercial real estate industry and will directly threaten economic development projects and related jobs.
• Small- and medium-sized developers will be most significantly impacted by this tax increase.
Said Ros-Lehtinen, “The use of carried interest as an offset for the Tax Extenders package will impose serious consequences on the commercial real estate sector, hinder job growth, and negatively impact the country’s recovering economy. This legislation is not what our country needs at a time of weakness in many of our financial sectors. Also, it makes no sense to create a permanent multi- billion dollar tax increase to pay for temporary tax relief.”
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