Austin may be the capital of Texas but simply flip two letters and the Lone Star State becomes Taxes. If that were the case the capital of Taxes would have to be Washington DC. According to NAR, the National Association of Realtors, there are tax initiatives afoot in Washington that could further stress the real estate recovery. NAR reports that Congress is considering new tax proposals that would place additional burdens on owners and investors in residential and commercial real estate.

The real estate industry is still very fragile and likely to remain so. In better times, the real estate industry would be a dynamic engine of job creation. Any new tax burdens on real estate owners will impair and delay further recovery. These proposals are ill-advised, inopportune and potentially destructive. Please take action today to tell Congress “No New Real Estate Tax Burdens”.

Background on Landlord
Congress proposes that ANYONE who receives rental income will be required to file IRS Form 1099 reports if they make payments to any contractor (such as plumbers, HVAC repairmen, lawn services and the like) if they pay the contractor $600 or more in any particular year. Small landlords no doubt receive other Forms 1099, but may have little experience in actually filing them with the contractors and the IRS. The proposal is a trap for the unwary because they would be exposed to penalties if they fail to file these reports.

Background on Carried Interest:
Congress is considering taxing “carried interest” at ordinary income rates instead of capital gains. Currently, carried interests are taxed as capital gains (at 15%). Carried interest is the share of profits paid out as compensation to a general partner in a limited partnership or limited liability corporation. Forty-six (46) percent of partnership tax returns in 2005 were tied to real estate, according to the Institute of Real Estate Management (IREM). A carried interest is often provided to partner(s) providing the day-to-day management and operation of the partnership and its asset(s). The carried interest usually takes the form of a payment of a specific part of the profits generated when a property is sold, over and above the regular compensation.

Send a letter to the following decision maker(s):
Your Congressperson
Your Senators

Below is the sample letter:

Subject: Citizens oppose new tax burdens on real estate

Dear [decision maker name inserted here],

I am a property owner and your constituent. Reports indicate that Congress may vote this week on a spending and tax measure that could include two harmful tax provisions directly affecting real estate. I urge you to oppose these changes.

The first would require that ALL landlords provide an IRS Form 1099 to all contractors they do business with if they pay that contractor $600 or more in any given year. The proposal would apply even to those who own just one property. This is a trap for the unwary. Since many of my clients are “little guys” looking to supplement their income with real estate investments, any proposal requiring them to file Forms 1099 would impose new expenses and subject them to penalties they are ill-equipped to pay. Often these small landlords don’t use tax professionals; if adopted, this proposal could force them to incur the expense of hiring tax professionals. This proposal is burdensome and overreaching. Oppose it.

I also oppose a proposed change to tax carried interest at ordinary income rates. A real estate investment however, is fundamentally different from a hedge fund or financial instrument investment. An investment in real estate is nothing like playing with other people’s money. Real estate is a fixed asset held for a long period of time. The worst thing about this proposal is that, for the first time, a particular type of real estate investment gain would no longer qualify for capital gains treatment. This is a terrible precedent. Oppose it.

The real estate industry, in all its commercial, multi-family and individual investment categories, is still very fragile and likely to remain so. These proposals are ill-advised, inopportune and potentially destructive. Keep our real estate market recovery on track by opposing these measures.