A Word From Our Government Affairs Director

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Washington Grants a Temporary Reprieve: Lead-Based Paint and Carried Interest

by Jeff Rogo, Government Affairs Director

In mid-June, the United States Environmental Protection Agency delayed enforcement of the key provisions to the Renovation, Repair and Painting Rule (RRP Rule addressing lead-based paint work practices). 

Later in June, the United States Senate failed to secure the 60 votes necessary to increase the tax on carried interest. 

Although this is good news, any celebration should be short-lived.  The EPA will take enforcement action later this year and Congress is likely to reconsider the tax on carried interest again.

EPA’s RRP regulations became effective on April 22.  The regulations are triggered when renovation or repair work is carried out on a market-rate property built before 1978 which disturbs more than six square feet of interior surface area or twenty square feet for exterior work.  In either of those instances, the repair, renovation or painting must be carried out by a trained and certified worker. 

After the rule took effect, EPA realized that renovation firms and maintenance personnel needed more time to obtain the necessary training and certifications to comply.  So, EPA will not take enforcement action for violations of the Rule’s firm certification requirement until October 1.  In addition, EPA will not enforce against individual renovation workers, such as apartment maintenance workers, if the person has applied to enroll in, or has enrolled in, by not later than September 30, a certified renovator class.  The class must be completed before December 31.

EPA issued the RRP Rule because the government believes a disturbing number of America’s children are still poisoned by lead-based paint in their homes.  EPA considers the certification and training requirements important to ensure that children and other residents are protected during renovation projects.  For more information, visit the government affairs pages of the NAA website, www.naahq.org.

Congress has been striving to offset the cost of several popular tax credits by increasing the tax rate on carried interest or a developer’s "promote."  In fact, for several years, legislators have proposed raising the tax on carried interest in order to generate new revenue for the federal government.  For several years, apartment industry leaders and other real estate interests have told their Senators and Congressmen that a tax on real estate entrepreneurs would be one more damaging blow for an industry struggling to climb out of the recession.

Changing the tax treatment of carried interest, from the capital gains rate to the ordinary income rate, was portrayed as a way to tax rich hedge fund managers.  Unfortunately, carried interest is also common in a large number of real estate deals.  It is given to reward a developer for undertaking the long-term risk of a project.  Changing the treatment of carried interest from capital gains to ordinary income would more than double taxes from 15% to nearly 40%.  What do you think this will do to investment in real estate?

Should you cross paths with one of your federal lawmakers this summer, don’t hesitate to tell him or her about your concerns with this proposal.  Again, more detail can be found on the NAA website.