A type of performance fee that gives developers a leg up for taking the lead on real estate projects may be cut at the knees by New York City’s new comptroller Scott Stringer, who condemns the fee as a tax loophole.
Stringer characterized “carried interest,” as a tax break for the rich, because it is taxed at a lower rate than ordinary income. Also known as a “promote,” carried interest is taxed at capital gains rates, generally about 20 percent as opposed to the normal income tax rate of around 40 percent, as The Real Deal has reported.
“The city and state should work together to close the Unincorporated Business Tax’s carried interest loophole — one of many tax policies at the federal, state and city level that have contributed to an unfair system where middle-class New Yorkers pay more income tax than high-level private equity managers,” Stringer told the New York Post.
Private equity firms, hedge funds and capital venture firms are the usual beneficiaries of carried interest, according to the Post. In real estate, a promote is a financial interest in the long-term capital gain of a development project.
“The carried interest is the bedrock of most real estate deals that I have seen,” Peter Hauspurg, CEO of Eastern Consolidated, has told The Real Deal in the past. Nabbing a share of the upside is “the only way to get compensated,” Hauspurg said.
During his campaign for mayor, Bill de Blasio also supported closing the loophole, as The Real Deal reported. But Stringer will have to appeal to Assembly Speaker Sheldon Silver and Governor Andrew Cuomo in order to get Albany on board with his plan, and sources told the Post that would likely prove difficult. [NYP] – Angela Hunt