2009-05-14, 10:11

Obama to Tax Carried Interest as Ordinary Income

By: Chris Iavarone
This week the Obama administration released the Green Book, a document that details the administration's FY2010 revenue proposals (details of the budget can be found online). Included in the Green Book was a plan to tax carried interest as ordinary income and not as capital gains (as it is currently taxed). The tax rate for ordinary income is set to rise to a top rate of 39.6% starting in 2011, while capital gains now are generally taxed at 15%.

Obama's proposal to tax carried interest as ordinary income is similar to legislation (HR 1935) introduced by Sander Levin (D-MI) on April 3rd. This bill is more detailed that previous bills introduced in the House, and includes a 40% penalty for underreporting carried interest income to the IRS.

Real estate partnerships, many of which involve carried interest, would be affected by these carried interest tax proposals, and there is a fear that such a plan could increase this country's shortage of affordable housing (readers can follow NHMC's coverage here).

Although similar plans have failed to pass the Senate in recent years, the current administration is focused on its adoption.

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