Wednesday, December 23, 2009

Tax Extenders Act of 2009 Doubles Tax on Carried Interest

Good old Charlie Rangel, the Chairman of the House Ways and Means Committee, has given all investors in real estate partnerships and hedge funds a nice Christmas gift.

By his reputation, you guessed it.

A tax increase.

But not just a little one. A 100%+ tax increase.

The Tax Extenders Act of 2009 (HR 4213) is an amendment to the Internal Revenue Code that would more than DOUBLE the tax rate on carried interest received by general partners in real estate partnerships, hedge funds, and all types of investment partnerships.

Carried interest is currently taxed at capital gains rates of 15%.

The new rule would tax the carry at ordinary income rates which can be as high as 35%.

Mr. Rangel is not alone here. 241 of his associates in Congress also voted to support this nonsense.

The good news is that the bill is now in the Senate. It hasn't passed yet.

The bad news is that it is almost certain it will.

Everyone knows about the turmoil in commercial real estate and how this segment is still deteriorating. So how is doubling the taxes on the carry going to help?

HINT: It won't.

The U.S. Treasury doesn't think about such mundane matters as putting yet another financial burden on an industry buckling from bad debt, foreclosures, rising vacancy rates, and excess inventory when it dreams up new things to tax. It acts likes like a spoiled brat that wants a lollipop in a candy store.

With allies like Mr. Rangel in the House, I'm sure Uncle Sam will get lots of sweets in 2010.

By the way, Charlie Rangel should know something about real estate investment. He's currently under investigation by the House Ethics Committee for, among other things, failing to report hundreds of thousands of dollars on rental income he received on a beach property in the Dominican Republic, living in multiple rent controlled apartments in New York City while claiming a home in Washington DC as his primary residence for income tax purposes, using his Congressional letterhead stationary to solicit donations for a policy institute named after him at City College in New York, and many other "oversights."

Robert J. Abalos, Esq.