Right now there is a big debate going on about the taxation of "Carried Interest". Evidently Congress thinks that this is going to be a big election issue and thus are trying to exploit it for all the publicity/press/votes they can.
Here is a link to some Congressional hearings on the subject
What is carried interest, and much more importantly, why should you care?
Carried interest is the hedge fund manager's short hand way of saying, compensation in the form of the investment partnership that you help manager.
If the compensation deal is structured correctly, the manager will receive profits distributions that will probably be considered long term capital gains. Thus they are able to drop their tax rate from around 35% (federal only) to 15%. This saves a lot of money if they are receiving millions of dollars of compensation.
Since these hedge fund managers are receiving millions of dollars in compensation, Congress figures they make easy targets and thus are trying to pass laws to tax the hedge funds manager's "carried interests" as ordinary income subject to norma tax brackets.
The problem here for RE investors is that while the fancy phrase of carried interest applies to big time hedge fund managers, many real estate investors do the exact same thing, but without the fancy title. In typical deals, the RE investor will find the deal, bring on a private investor to fund the deal, and split the profits 50/50.
Presumably the profits will be long term capital gains and thus the RE investor only a 15% tax on the profits.
If in fact the legislation passes, those profits will now be subject to taxes at the normal tax brackets.
Bottom line, ignorance isn't just bliss, its expensive.
