The House’s latest tax bill, released earlier this week, did not include any change to the tax treatment of carried interest, leaving the current capital gains characterization untouched. However, the CRE industry cannot fully relax just yet: the Senate could still revive the issue as it drafts its own version and any final tax legislation will need to reconcile differences between the two chambers. While the absence of carried interest reform in the House bill is notable, the debate is far from over.
"It is possible that the issue will come up again in the Senate where the budget numbers might make it easier to consider," Mark Luscombe, principal analyst for Wolters Kluwer's tax and accounting division in North America, tells GlobeSt.com. "It appears, however, that President Trump is not pushing hard for inclusion, so it might be left out."
One reason the topic is picked up repeatedly is because carried interest is “very much inside baseball,” Michael Greenwald, director of tax services at Berkowitz Pollack Brant Advisors, told GlobeSt.com. “It makes for a very good sound bite that we want to tax carried interest like ordinary income. It makes for great politics.”
Recommended For You
That is, it sounds ominous and weighty even when the vast majority of people have no idea what it means, as Greenwald notes.
Part of the reason is lobbying, of course. "Efforts by Presidents Trump, Biden, and Obama to end the carried interest loophole have repeatedly failed, reflecting the sustained influence of lobbying by private equity and venture capital interests," says Javier Palomarez, CEO of the United States Hispanic Business Council. "Its continued survival in the current bill underscores the strength of that opposition."
Another, though, are the estimates of how much an end to the capital gains treatment might provide for budget balancing. The Congressional Budget Office undertook an analysis of what would happen if carried interest were treated as ordinary income. Their estimate was about $11.5 billion over 10 years. An annual average of under $1.2 billion in the face of a currently $1 trillion budget is 0.12%, a relatively small amount.
The original House budget resolution envisioned $4.5 trillion in potential deficits over the 10-year horizon, which is critical in the Senate because of restrictions on adding to a deficit. Now the amount in question is $3.8 trillion.
“There’s still fairly large wiggle room if they wanted to do a smaller cut to Medicaid or other provisions like that and come out like heroes,” Greenwald said. “They don’t need to raise any additional revenue at the moment if it stays within the original resolution.” Treating carried interest as ordinary income would be just that, a revenue raiser. Aside from “very powerful” lobbies, but “there’s no reason at the moment to deal with it," according to Greenwald.
“I talk about wanting to lose weight and go to a gym,” he added. “If I were really motivated, I would do it. The fact that I haven’t done it, you have to question my motivation. I put this in the same category. Congress can talk about it. You have to question whether they’re really sincerely motivated to change it. Sometimes it’s helpful to have something in your back pocket.”
If something extraordinary occurred, which still could conceivably happen, changing the tax status of carried interest remains in the pocket, ready to be put on the table.
“The something extraordinary is there’s something else that somebody wants and this becomes the tradeoff for it,” said Greenwald. “We’ll know because it will start to appear in mock-ups coming out of other committees.”
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
