The American Seniors Housing Association has joined with 16 other real estate industry partners to urge Congress to avoid new tax hikes on real estate.
In a March 26 letter to leaders of the House Ways and Means Committee Chairman Jason Smith (R-MO) and Ranking Member Richard Neal (D-MA), as well as Senate Finance Committee Chairman Mike Crapo (R-ID) and Ranking Member Ron Wyden (D-OR), the 17 organizations, led by the National Multifamily Housing Council, asked Congress to preserve investment in real estate by maintaining longstanding tax law related to carried interest and capital gains.
“Carried interest is a crucial tool driving American real estate investment, spurring housing development, and promoting the growth of our built environment,” the letter read. “Retaining capital gains tax treatment for carried interest helps ensure our nation can meet the goals of increasing housing supply, modernizing our building stock, and contributing to economic growth.”
Proposals to tax all carried interest as ordinary income, they said, would lead to “enormous” tax hikes on 2.2 million real estate partnerships and 9.7 million real estate partners who develop, own or operate income-producing real estate. That, they said, would lead to fewer residential units being created at a time when more are needed.
Carried interest, the organizations wrote, is a reward for equity capital, sweat equity and the assumption of business risks, and it reflects value that professionals add beyond routine services, including business acumen, experience and relationships.
Carried interest legislation, the groups said, would raise taxes on real estate partnerships of all sizes.
“The tax increase would fall on small and mid-sized real estate entrepreneurs who are unable to make large capital contributions to their projects, but instead contribute hard work and effort,” the letter read.
The economic damage of taxing entrepreneurs, they said, would be “immense,” and would reduce wages, lower property values and undermine economic growth. A tax on carried interest would increase the costs to build or improve real estate and infrastructure, they added.
“Projects that involve a higher level of economic and market risk — new affordable housing or commercial projects in long-neglected and capital-starved neighborhoods — could be passed up in favor of projects with greater certainty, but less potential upside,” the letter read. The groups added that if the carried interest legislation were applied retroactively to existing partnerships, it would “distort the economics of private-sector agreements with unknown and potentially damaging consequences for the overall economy and real estate markets.”
The letter comes as the senior living industry is facing supply issues that indicate an urgent need for construction to meet increasing demand.
The National Investment Center for Seniors Housing & Care predicts that occupancy levels will surpass 90% by the end of 2026, an occurrence that only has happened “a handful of other times since NIC MAP Vision began tracking the data.”
In early 2024, NIC MAP data indicated a need for 156,000 additional senior housing units by 2025, 549,000 additional units by 2028 and 806,000 additional units by 2030.
NIC MAP CEO Arick Morton previously told McKnight’s Senior Living: “While the growing 80+ population offers a generational opportunity, the industry must act swiftly to address the looming supply gap. Current development rates meet only 25% of the necessary pace to sustain demand, highlighting an urgent need for collaboration and investment.”