Last week several Senate Democrats, led by Senate Banking Committee chair Sherrod Brown (R-OH), introduced the Carried Interest Fairness Act, which would increase the tax on carried interest compensation (also known as “promotes” or “promoted Interest” in real estate context), from capital gains rates to ordinary income.

In real estate partnerships, a carried interest is a financial interest in the long-term capital gain of a development given to the general partner by the investors. Carried interest acknowledges the risks taken by the general partner in a real estate development venture, including funding predevelopment costs, guaranteeing construction budgets, and the risk of potential litigation. NAIOP and the real estate industry have long opposed the taxation of carried interest as ordinary income.

Past efforts to increase taxes on carried interest failed, most recently because Senator Kyrsten Sinema (D-AZ) opposed its inclusion in a filibuster-proof budget reconciliation bill. While passing a carried tax increase this year is unlikely, introduction of the legislation serves as a marker on the issue in the broader tax reform debate; this will be the top issue for Congress in 2025 because of the expiration of most provisions of the Tax Cuts and Jobs Act of 2017.