Why tax reform proposal would hit the real estate industry from so many directions

The proposal put forward last week by House Ways and Means Committee Chairman Dave Camp, R-Mich., to simplify and overhaul the tax code has plenty of enemies, but the real estate industry may have the most at stake in the debate.

Advocates for the real estate industry and property owners are expected to fight hard against provisions that target perks for homeowners like the mortgage interest deduction, exclusion of gains on the sale of a principal residence, and property tax deductions.

But the Washington Examiner’s senior political columnist, Timothy Carney, thinks that another provision of Camp’s proposal that would change the way hedge fund managers are paid could have the biggest impact on real estate.

When hedge fund managers who oversee investment partnerships take a slice of the profits they earn for investors, that money is considered capital gains, and often taxed at 15 percent instead of up to 40 percent for ordinary income. The real estate industry has fought to protect the “carried interest” tax perk for hedge fund managers, because nearly half of all investment partnerships are real estate-related.

“In other words, anything that curbs hedge funds also curbs real estate,” Carney says.

Lobbying groups for commercial real estate and apartment builders have fought to protect tax breaks on carried interest, and can be expected to work behind the scenes to scuttle Camp’s proposed changes.

Carney says the reason there are so many provisions of Camp’s bill that would hammer real estate is not because he’s got anything against developers, mortgage bankers or Realtors.

Tax reform would hit real estate from so many directions because “nobody has so successfully tilted the tax code in their favor,” he says.

“The National Association of Realtors has been the top single-industry lobby in each of the past three years. And mortgage lenders are hardly shy when it comes to politics.” Source: washingtonexaminer.com.