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Bronze Contributor
Speedway Pass
Aug 9, 2007
Apartment Industry Mobilization Service
October 25, 2007

URGENT: Action Needed to oppose modifICations to the taxation of carried interest
NAA/NMHC Seek Your Letters of Support
On October 25, the Chairman of the House Ways and Means Committee, Charles Rangel (D-NY), announced the introduction of a $1-trillion tax plan, the Tax Reduction and Reform Act of 2007. Included in this giant tax reform package is a proposal that will more than double taxes on the carried interest (or “promoteâ€) received by general partners in real estate partnerships by taxing those returns as ordinary income – even if the income of the partnership is capital gain. The provision included in the Tax Reduction and Reform Act of 2007 is based on a proposal that NAA/NMHC have been actively opposing for several months.
The proposal to change the taxation of carried interest could be the largest modification to the taxation of real estate in over 20 years. The original focus of this tax change was apparently the Wall Street private equity and hedge funds that make extreme profits but the current version of the legislation would have a broad reach. It is vital that lawmakers understand that this proposal will not affect just Wall Street but will have a detrimental impact on the real estate partnerships on Main Street.
NAA/NMHC, working with numerous real estate trade organizations, has been meeting with congressional offices in an effort to educate them on the potential impact of this change. It is critical that lawmakers hear the ways that this proposal would significantly hamper the ability of their constituents to build communities, provide housing, create jobs, and rehabilitate neighborhoods in their own states and congressional districts.
A draft letter for you to send to your congressional representative, along with other helpful documents, is posted at
NAA/NMHC asks you to write a letter to your members of Congress (your Representative in the House and your two Senators), and copy NAA/NMHC:
  1. You can write your own letter or simply use the sample letter, which is below and is also available here.
  1. Please be sure that you personalize the letters by printing them on your company letterhead. It is important to let your Member of Congress and your Senators know about your firm’s connection to his or her district and/or state.
  1. Please fax the letter to your Representative in Congress and both of your Senators (please note that faxing is vastly preferable to mailing letters due to post-9/11 security procedures that slow mail delivery on Capitol Hill). If you need to find a fax number, the list is available at
  1. Please also fax a copy of your letter to: NAA/NMHC’s Legislative Associate, Amber Sanders, at 202/775-0112.
If you have any questions, please contact Jennifer Bonar Gray, NAA/NMHC’s Vice President of Tax Policy, at 202/974-2362 or
DATE [Insert date]
The Honorable [insert your Congressperson’s name or your Senator’s name here]
U.S. Congress
Washington, D.C. 20510

Dear _______: [insert your Congressperson’s name or your Senator’s name here]
As a constituent, I am writing to urge you to oppose the Tax Reduction and Reform Act of 2007 introduced on October 25 by Chairman Charles Rangel.
This legislation contains a proposal that would modify the tax treatment of carried interests. While this proposal is being marketed as a tax increase on hedge fund managers and other rich Wall Street executives, the truth is that real estate partnerships and the 1.5 million workers employed by the real estate business will be negatively affected by the changes being proposed.
A carried interest, which has been a fundamental part of investment partnerships for decades, is an interest in the capital gain of the partnership when it sells its property. Investing partners grant this interest to the general partners in recognition of the risk the general partner takes and the value he or she brings to the venture.
The proposal would change that taxation of the “carried interest†or “promote†received by a general partner in a partnership by raising the taxes on this income from the current 15-percent capital gain tax rate to ordinary income tax rates, which are currently as high as 35 percent. Such a change would have a significant impact on real estate partnerships of all sizes.
The purpose of structuring real estate investments as partnerships that contain a carried interest component is not, as some would argue, to avoid paying taxes. The purpose is to create the proper vehicle to allow individuals with real estate development and operations experience--the general partner--to join with those who are willing to invest capital in such projects--the limited partners.
I strongly believe that capital gains is the proper treatment for the carried interest received by real estate general partners not merely due to the “sweat equity†involved in these deals but also because of the risk that general partners are undertaking. That risk takes the form of investment risk--that the underlying asset will increase in value and a profit will be enjoyed--and often the additional risk of guaranteeing the construction financing, the risk of potential liabilities generated by lawsuits and environmental issues, etc. As a result, a general partner in a real estate transaction has much more at stake than merely his or her initial monetary investment and it is appropriate that he or she receive a return on this additional investment as well.
The partnership arrangements that utilize carried interests are vital to the development of new projects and the updating of existing properties across the U.S. Inappropriate tax increases will make many of these projects unprofitable and the unintended consequences of imposing new tax rules on the real estate industry will be felt throughout the country--not just on Wall Street.
The results of this change in tax law will not just be academic. This proposal would impose the most sweeping and potentially the most disruptive new tax on real estate since the Tax Reform Act of 1986, which contained the passive loss limitation rules. Those rules unmistakably contributed to the real estate depression of the late 1980s and early 1990s. If enacted, changes in the taxation of carried interests could affect which developments are built and could be the difference in determining which projects, particularly those located in underdeveloped areas in need of affordable housing, go forward.
As a member of the National Multi Housing Council/National Apartment Association and the rental apartment industry, I urge you to oppose this effort to re-characterize the taxation of carried interests.
Thank you.
[Insert your name]

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