Some Things Never Change…But…How ‘Bout That Tax Code?? Posted by Jim

In 1986 Congress changed the tax code for commercial real property ownership causing one of the worst economic downturns the real estate market has ever witnessed. I was there…many of us were. It wasn’t a good time if you owned, sold, leased, or wanted to purchase real property.

To be blunt…Congress can give and Congress can take away…and they did in 1986. They
removed tax benefits that were available to purchasers of commercial property.
Each year the National Association of REALTORS® diligently watches Congress contemplate changes to programs and services. In particular, NAR gives close attention to both the new tax benefits that Congress might give. More particularly, NAR fights efforts to take benefits away that would adversely impact membership and our clients…lest we forget we are “The Voice for Real Estate.” That means we speak for more than just our membership. We also speak for every real property owner in the United States.

As part of a continuing look at taxes paid (and at places to raise revenue), Congress is considering a change in the “carried interest” provisions of the tax code in order to pay for tax extensions in 2010. (The “carried interest” rules determine whether general partners in real estate investments pay taxes at capital gains rates or at ordinary income rates when the investment is sold.)

Earlier versions of the carried interest rules took away any possibility of capital gains treatment of the carried interests of general partners in real estate partnerships. The current version is less burdensome because it sets out rules whereby these real estate general partners can preserve their capital gains.

In this economic climate, it would be hazardous to tax carried interest at ordinary income rates. This change, if enacted, would cause many of our members and clients to see a heavy increase in their tax burden. At a time when the commercial investment real estate market has its own financing woes and is teetering on a collapse worse than the residential sector, we don’t need another nail in the coffin.

NAR is vigilantly watching this bill in the House. We oppose any alterations to how carried interest is taxed that would affect real estate partnerships. We are working with leaders in Washington to protect your interests, and we will keep you updated on this issue.

The holiday season is upon us. Best wishes to all of you now and for a wonderful New Year!!

Jim Helsel, 2010 NAR Treasurer