We do not claim to be soothsayers, but it’s safe to say Representative Dave Camp’s (R-MI) sweeping tax reform “discussion draft” is likely to go over like a two-ton balloon with real estate associations and professionals.
Included in Camp’s sweeping tax reform proposal is the death of the deduction for property taxes as well as a cap on the mortgage interest deduction (at $500,000 in mortgage debt).
But that’s not all. Camp’s proposal also targets other real estate tax breaks including credits for energy efficiency, first time homebuyers, and low-income housing. But wait, there’s more! Camp is also calling for change to the way hedge fund managers are paid.
And why should the real estate industry care about a tax rate paid by hedge funders and Wall Street billionaires? Just this:
Many investment funds are run as partnerships between investors and fund managers. Rather than investors paying a management fee, the managers take a piece of the gains. This type of compensation is called “carried interest” and is taxed at the lower capital gains rate. Simply put, for most fund managers, the change would mean the difference between a 15% and 40% tax rate on real estate holdings.
And as pointed out by the National Multi-Housing Council in its response to Camp’s proposal, “41 percent of all investment partnerships are real estate related.” Curbing hedge fund earnings curbs real estate activity.
The NAIOP (National Association of Industrial and Office Properties, aka the Commercial Real Estate Development Association) regularly lobbies against tax hikes on carried interest, as does the Building Owners and Managers Association. Both can be expected to weigh in vehemently if Camp’s proposal gets any legs.
So far, though, GOP leaders aren’t tripping over themselves to support Camp’s proposals. You can be sure real estate industry executives will be burning up the phone lines if they do.
Update (8:33 a.m.): NAIOP Southern Nevada President Mike Montandon emails with these comments:
I don’t know of Mr. Camp, but it is interesting that he titles this a “discussion draft”. If you believe that the real estate industry has anything to do with an economic recovery (WE DO), then he is taken virtually every possible way to kill that recovery and bundled it into one “discussion”.
Property tax deduction? Mortgage interest? Hedge fund manager pay? Carried interest? He may have missed one or two economy killers, but it sounds like he might be open to discuss them too. NAIOP has established a position paper, at the local and national level, that opposes all of these items. Yes, the phones will ring if this discussion advances.