Something about this deal smells bad.

And I'm not on about the federal tax break. I am writing of the total circumstances. Who was involved, why they were involved and the ultimate tax-payer supported purchaser. This is indeed a smokey situation.

Top aide benefited from tax break Obama has assailed.

WRITTEN BY BETTER GOVERNMENT ASSOCIATION POSTED: 06/24/2015, 07:32PM

Senior White House adviser Valerie Jarrett. | Sun-Times file photo

Valerie Jarrett, a friend of President Barack Obama who is also one of his top advisers, benefited from an income-tax loophole that the president has said unfairly helps the “wealthy and well-connected” — a tax break that Jarrett herself has tried to close.

The “carried interest” benefit Jarrett received may have saved

her $200,000, according to records and interviews.

The term refers to the performance fee paid to real estate developers, as well as private equity and hedge fund managers for managing other people’s money when their deals or funds exceed certain profit thresholds.

Carried interest profits are taxed at the lower income-tax rate afforded capital gains. Federal income taxes on capital gains are 20 percent — about half the 39.6 percent maximum rate applied to salaried income.

Capital gains are taxed at a lower rate to encourage people to take the risk of buying assets such as stocks and bonds. Real estate developers and investment managers can get the same tax benefit with much less personal investment or risk.

Since his first presidential campaign, Obama has pushed unsuccessfully to tax carried interest income at the higher rate. In every annual budget message since taking office, the president has pounced on carried interest, which allows the wealthy to be taxed at a lower income-tax rate than the middle class.

In 2011, he called for eliminating the tax break as a key way to finance his 2011 American Jobs Act.

“Should we keep tax breaks for millionaires and billionaires?” the president told Congress in a September 2011 address. “Or should we put teachers back to work so our kids can graduate ready for college and good jobs?”

The effort has yet to pass the U.S. Senate.

Jarrett has been one of the president’s point people in the effort to eliminate the tax break.

Federal law bars executive branch employees from playing a substantial role in governmental matters that would have a direct impact on their own financial interests. They are required to remedy such conflicts of interest by asking to be recused, requesting a waiver or selling assets.

Other federal appointees have had to sell off assets. But White House lawyers allowed Jarrett to keep her interest in the development project that brought her the tax perk, according to records and interviews. And there is no record Jarrett ever got a White House waiver to work on the issue.

A White House spokeswoman said Jarrett followed all applicable ethics rules.

Jarrett’s carried interest came from her portion of the profits on the $160 million sale in 2013 of a high-rise apartment building near downtown Chicago.

Before Jarrett came to the White House in early 2009, she was a $300,000-a-year executive of The Habitat Company, a Chicago real estate development firm. In 2005, as a Habitat executive vice president, Jarrett helped develop the 46-story Kingsbury Plaza luxury apartment tower at 520 N. Kingsbury St. north of downtown.

The property was owned by Grand Kingsbury LLC, whose managing partner was Habitat Grand Kingsbury LLC, owned by Jarrett, Habitat founder Daniel Levin, Levin’s wife Fay Hartog-Levin and three other top Habitat executives, records show.

Jarrett owned 10.67 percent of Habitat Grand Kingsbury, according to an economic disclosure statement she later filed with the White House.

To pay for the $104 million construction cost, Grand Kingsbury took out a $71.5 million mortgage and also brought in the General Electric Pension Trust, which put up $30.4 million, records show.

By the time the high-rise overlooking the Chicago River opened in 2007, Jarrett was Habitat’s president.

Kingsbury Plaza was sold to the taxpayer-supported Teachers’ Retirement System of Illinois and other investors for $160 million in 2013.

By then, Jarrett was a senior adviser to the president.

Senior White House adviser Valerie Jarrett with President Barack Obama in Hyde Park in 2012. | AP file photo

The GE pension fund received $67.2 million and the Habitat partners got $17.4 million from the sale, records show, with the remainder of the sale price covering the mortgage and remodeling costs.

Jarrett’s share of the proceeds was $1,855,320, according to Cook County property records.

Her capital gains from the Kingsbury deal were between $1 million and $5 million, according to the range she gave in a 2013 economic interest statement filed with the White House.

Rachel Racusen, a spokeswoman for Jarrett, referred questions about any carried interest benefit on the deal to Habitat.

Matthew Fiascone, president of the company, and Michael Kavanau of HFF Inc., the commercial real estate services firm that arranged financing of the construction in 2005 and had a role the 2013 sale, confirmed that the Habitat managers — which included Jarrett — received a carried interest benefit on the Kingsbury Plaza sale.

Those involved in the deal either would not say how much that was or said they didn’t know.

But a review of public records indicates Jarrett’s carried interest was over $1 million. That would mean a tax savings of at least $200,000.

The calculations were based on publicly filed property and mortgage records, Jarrett’s ethics disclosure and interviews.

Property records indicate the Habitat group’s original investment was at least $2.5 million. Based on the 10.67 percent stake Jarrett reported, that would make her investment about $266,000.

The sale allowed the GE pension fund to more than double its investment, from $30.4 million to $67.2 million, according to property records. Unlike Habitat, GE did not have a carried interest benefit because it was a limited partner, not the developer of the project.

Using the same profit ratio, Jarrett’s investment would have more than doubled — to about $590,000.

Subtracting that from her sale proceeds of $1.8 million means Jarrett received a carried interest of about $1 million.

That would give her an estimated tax savings of $200,000, based on the difference between the 39.6 percent income-tax rate and the 20 percent capital gains rate on $1 million.

Briefed on the dealings, Victor Fleischer, a University of San Diego law professor who is an expert on carried interest, said that, “given the available information,” the estimate of Jarrett’s tax savings appears to be “in the right ballpark.”

Jarrett played no decision-making role in the sale, according to her spokeswoman and others involved in the deal.

“The Habitat investment disclosed on Ms. Jarrett’s forms is one she had over six years ago, before coming to the White House,” Racusen said. “Since coming to the White House in 2009, she has had no involvement in or knowledge of any investment decisions made by Habitat or other private companies, including this sale.

“In adherence with our rigorous ethics process – the most stringent ethics rules any administration has ever self-imposed – Ms. Jarrett does not engage in discussions related to policy matters that could present a conflict of interest. And as a senior member of the president’s team, she strongly supports his proposal to close the carried interest tax loophole.”

Starting in 2010, Jarrett, as the president’s liaison to the business community, was called on to discuss the administration’s proposal to eliminate the carried interest tax break at three meetings held by the Real Estate Roundtable, a group of top industry executives.

Jarrett met separately with hedge fund executives and also went on the talk-show circuit promoting the cause.

This story is by Chuck Neubauer and Sandy Bergo of the Better Government Association.