President Trump is meeting with Republican lawmakers to discuss potential tax code changes, including a proposal to eliminate the carried interest tax break. White House Press Secretary Karoline Leavitt announced the discussions on February 6, highlighting Trump’s renewed focus on this long-debated issue.
What’s at Stake?
Carried interest refers to compensation—typically a share of profits—received by private equity, hedge fund and venture capital managers. It’s also a common structure for compensating real estate developers. Under current law, carried interest is taxed at the lower capital gains rate (up to 20%) instead of ordinary income rates (up to 37%).
The so-called “loophole” allows for such managers to receive compensation taxed at favorable capital gain rates (with a maximum marginal tax rate of 20%) rather than ordinary wage income for their services (which is taxed as a higher maximum marginal rate of 37%).
While Trump didn’t campaign on abolishing carried interest in 2024, he has called for its elimination in the past. In 2015, he criticized hedge fund managers for paying too little in taxes, and in 2016, he vowed to close the “carried interest deduction” and other tax loopholes. However, his 2017 tax reform only tightened eligibility, requiring a three-year holding period for the lower tax rate to apply.
What’s Next?
It remains to be seen whether Trump’s discussions will gain traction and result in proposed legislation, but any changes to carried interest taxation could have major implications for the financial and real estate industries. We’ll continue to monitor developments and provide updates.
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