May 31, 2010
Nation's Building News

The Official Online Newspaper of NAHB

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Politics and Government
House Passes Tax Extender Bill, But Would Change Carried Interest Taxation to Pay for It

On May 28, the House narrowly passed a package extending numerous expiring tax credits and other programs.

H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010, contains a number of provisions supported by NAHB, including an “exchange” provision for the Low Income Housing Tax Credit (LIHTC) program allowing state housing finance agencies to trade in a portion of their tax credit allocation for grant dollars to support local affordable housing.

The bill also includes an extension of the New Energy Efficient Home Tax Credit (45L credit) and the National Flood Insurance Program. H.R. 4213 was passed by the House by a vote of 215 to 204.

The House struggled last week to garner the necessary votes to pass the legislation. Encountering strong resistance when many fiscally conservative Democrats objected to the overall cost of the bill, the House leadership was forced to scale it back, ultimately splitting it into two parts. The second part — which also passed the House on May 28 — contains a fix for a Medicare reimbursement issue for doctors.

While NAHB strongly supports several of the programs that would be extended in the bill, it vehemently opposes changing the taxation of “carried interest” as the central revenue offset to pay for the bill. Under present law, income generated by carried interest in a partnership is taxed as capital gains.

Under the House plan, for 2011 and 2012, carried interest would be taxed as 50% capital gains and 50% ordinary income; this would increase in 2013 to 75% ordinary income and 25% capital gains. (For more about this issue, click here and read the final section of "Eye on the Economy.")

NAHB sent a letter to House and Senate leaders warning that this plan would significantly harm real estate development, including multifamily housing, and that thousands of real estate construction jobs would be lost.

The House originally planned to pass H.R. 4213 on Tuesday, May 25, giving the Senate adequate time to debate and pass the bill, sending it to the President before Memorial Day. The Senate will now take up the bill after it returns from its Memorial Day recess on June 7.

While the Senate is expected to address H.R. 4213 as one of its first orders of business when it returns, it remains unclear if there is enough support to pass the bill. Senate Republicans are expected to filibuster the bill, which would require 60 votes to overcome.

In the Senate, both the bill’s overall cost — but also the change in the tax treatment of carried interest to pay for it — remain major hurdles. Ultimately, the Senate may be forced to further modify the bill to garner the needed 60 votes. If so, the House will have to approve those changes.

To read legislation, click here and enter the bill number in the upper center of the page.

For more information, e-mail J.P. Delmore at NAHB, or call him at 800-368-5242 x8412.

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