Senate Unclear on Resolution of Tax Extenders Legislation

In the wake of the surprise election of Republican Scott Brown to fulfill the remainder of the late Massachusetts Senator Ted Kennedy’s term, the outlook for passage of legislation to extend bipartisan tax provisions that expired at the end of 2009 has become more complicated.

Among the many business-supported provisions in the tax extenders legislation are NAIOP-supported provisions, such as the 15-year qualified leasehold depreciation provision and brownfields remediation expensing. In order to pay for the extension of these provisions, the House-passed legislation included a measure to increase the rate of tax on partnership “carried interests” (also known as “promoted interests” or “promotes”) from capital gains rates of 15 percent to ordinary income rates as high as 35 percent.

NAIOP and the real estate industry strongly opposed the carried interest tax hike and the Senate refused to take up the House bill. Instead, the Senate had planned to finish negotiations on a healthcare bill in time to have legislation ready for the president’s signature by the state of the union, and use a provision from the House-passed version of healthcare reform to pay for the tax extenders bill rather than the more controversial carried interest tax hike. That provision would have raised $23 billion by eliminating the ability of paper companies to qualify for a cellulosic fuels tax credit and was not expected to make it into the final bill.

The loss in Massachusetts has deprived the Democrats the 60-seat, filibuster-proof majority needed to overcome opposition to the healthcare legislation. As a result, whether the cellulosic fuels offset will still be available for use as a revenue offset for the tax extenders legislation is unclear. Also muddled is how the House and Senate will resolve another pressing tax issue — resolution of the estate tax, which expired at the end of 2009.

Hundreds of NAIOP members will be attending the 2010 Chapter Leadership and Legislative Retreat in early February, and passage of tax extenders legislation and opposition to a carried interest tax increase will be key elements of our message to elected officials during their Capitol Hill Day visits. (See NAIOP’s 2010 Legislative Priorities).

For more information, contact Aquiles Suarez at (703) 904-7100, ext. 115.