Carried interest tax deduction loophole

Extracted Attributes

• Definition

  A share of investment profits (performance fees) paid to investment managers in alternative investments, such as private equity and hedge funds.

• Beneficiaries

  Investment fund general partners, private equity managers, venture capital managers, hedge fund managers

• Alternative Names

  Carried interest loophole, Wall Street's favorite tax break

• Primary Criticism

  Allows the ultra-wealthy to pay lower federal tax rates than most working Americans, creating an unfair advantage and rigging the tax system.

• Current Tax Treatment

  Taxed at lower long-term capital gains rates instead of ordinary income tax rates

• Capital Gains Tax Rate

  23.8%

• Self-Employment Tax Exemption

  Not subject to the 15.3% self-employment tax for Medicare and Social Security

• Ordinary Income Tax Rate (up to)

  40.8%

• Estimated Revenue if Closed (Treasury Proposal)

  $6.5 billion over 10 years

• Required Holding Period for Long-Term Capital Gains

  More than three years (extended from one year by the Tax Cuts and Jobs Act of 2017)

• Estimated Revenue if Closed (Congressional Budget Office)

  $13 billion over 10 years

Timeline

• The Tax Cuts and Jobs Act of 2017 was enacted, extending the required holding period for assets to be considered long-term capital gains from one year to three years, thereby impacting the taxation of carried interest. (Source: Web Search Results)

  2017-12-22

• Representatives Marie Gluesenkamp Perez and Don Beyer introduced the 'Carried Interest Fairness Act' to eliminate the loophole and require carried interest income to be taxed at ordinary wage rates. (Source: Web Search Results)

  2023-01-01

• Donald Trump renewed calls to end the carried interest loophole as part of his populist tax plan, aiming to decrease the federal budget deficit. (Source: Related Documents, Web Search Results)

  2024-01-01

Carried interest

Carried interest, or carry, in finance, is a share of the profits of an investment paid to the investment manager specifically in alternative investments (private equity and hedge funds). It is a performance fee, rewarding the manager for enhancing performance. Since these fees are generally not taxed as normal income, some believe that the structure unfairly takes advantage of favorable tax treatment, e.g. in the United States. In this regard, it is often referred to as the carried interest loophole. The Hill referred to it as "Wall Street's favorite tax break."

Web Search Results

• Gluesenkamp Perez, Beyer Introduce Bill to Close Carried Interest ...

  The carried interest loophole allows investment managers to pay the lower 23.8 percent capital gains tax rate on income received as compensation, rather than the ordinary income tax rates of up to 40.8 percent that they would pay for the same amount of wage income. The _Carried Interest Fairness Act_ requires carried interest income to be taxed at ordinary wage rates. According to the Treasury proposal, closing this loophole will raise $6.5 billion in revenue over 10 years. [...] _“The carried interest tax loophole stands as one of the most glaring examples of how the ultra-wealthy exploit and rig our broken tax system to their advantage,”_said David Kass, executive director of Americans for Tax Fairness._“It’s common sense – Wall Street hedge fund managers shouldn’t pay lower federal tax rates than nurses, teachers, and most working Americans. This change is long overdue and represents a critical step toward a fairer tax system that ensures these uber-wealthy [...] Services Resources Press Contact Me About Services Resources Press About Services Resources Press Resources / Press Share on and Rep. Don Beyer (VA-08) introduced the _Carried Interest Fairness Act_ to eliminate a tax loophole that benefits wealthy money managers on Wall Street. The current carried interest loophole allows investment managers to often pay almost half the tax rate compared to most other Southwest Washington workers.

• Trump wants to end the 'carried interest loophole.' What it means

  President Donald Trump has renewed calls to end a popular Wall Street tax break. The “carried interest loophole” refers to favorable tax treatment for certain compensation received by private equity, venture capital and hedge-fund managers. Investment fund general partners pay long-term capital gains on carried interest held for more than three years. [...] The “carried interest loophole” offers favorable tax treatment for certain compensation received by private equity, venture capital and hedge-fund managers. Investment fund general partners receive part of their earnings via a share of the fund’s profits called carried interest, which is taxed at long-term capital gains rates when held for more than three years. [...] Taxing carried interest as regular income could decrease the federal budget deficit by $13 billion over 10 years, according to a December estimate from the Congressional Budget Office. Image 10: President Trump seeks to close carried interest loophole: Here's what to know watch now VIDEO 6:32 06:32 President Trump seeks to close carried interest loophole: Here’s what to know Squawk Box Trending Now

• What Is the Carried Interest Loophole, and Why Is It So ...

  # What Is the Carried Interest Loophole, and Why Is It So Difficult to Close? PRINT Share "Click Here") The U.S. tax code is riddled with tax expenditures, better known as "tax breaks," including loopholes, deductions, exemptions, credits, and preferential rates. Among the most controversial is the loophole for carried interest. Here we examine the treatment of carried interest in the U.S. tax system and its implications for the federal budget. [...] Taxing carried interest as a loan: carried interest would be treated as a loan at a preferred interest rate, and the difference between an “adequate” amount of interst on the loan and the amount paid would be taxed at ordinary income tax rates. [...] ## Potential Changes to Carried Interest The Tax Cuts and Jobs Act of 2017 was the most recent revision to the treatment of carried interest — extending the number of years an asset must be held before it is considered a long-term capital gain from one year to three. Tax policy experts and economists have discussed whether further revisions to the treatment of carried interest should be considered.

• Carried Interest Explained: How Carry Works & Tax Treatment - Carta

  The fact that carried interest is taxed as a capital gain rather than compensation also means that it is not subject to the 15.3% self-employment tax that is paid by most employees and employers to help finance Medicare and Social Security. ### The “carried interest loophole” [...] Some see the current tax treatment for capital gains as a loophole that allows high-income investment managers to pay lower taxes than most other Americans. At various times, politicians on both sides of the aisle have pushed to “close” the loophole and increase the tax rate on capital gains. [...] Carried interest What is carried interest? How carried interest works Preferred Return (or a hurdle rate) Carried interest structures and allocation Distributions and waterfall structures Clawback Vesting Carried interest calculation Carried interest taxation The “carried interest loophole” Controversies and legislative efforts Share on TwitterShare on LinkedinShare by Email Request a demo

• What is carried interest, and how is it taxed?

  What is carried interest, and how is it taxed? What is carried interest, and how is it taxed? Carried interest, income flowing to the general partner of a private investment fund, often is treated as capital gains for the purposes of taxation. Some view this tax preference as an unfair, market-distorting loophole. Others argue that it is consistent with the tax treatment of other entrepreneurial income.