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Carried Interest Tax Break May Be Changed, House Tax Chief Says

The change would double the length of time an asset would have to be held to qualify for the lower rate.

(Bloomberg)—The carried interest tax break that provides an advantage for investment managers would be revised under changes the House’s chief tax writer says he’s planning.

House Ways and Means Chairman Kevin Brady said on CNBC Monday morning that he intends to attach a “two-year holding period” to carried interest. The tax break is used widely among private-equity managers, venture capitalists, certain real estate investors and hedge fund managers.

Carried interest is the portion of an investment fund’s profit -- usually a 20 percent share -- that is paid to investment managers. Currently, tax authorities treat that income as capital gains, making it eligible for a tax rate as low as 23.8 percent -- on gains from assets held for a year or more. The top tax rate for ordinary income is 39.6 percent. The change would double the length of time an asset would have to be held to qualify for the lower rate.

“We will put in the two-year holding period on carried interest to make sure it’s really focused on those long-term, traditional real estate partnerships,” Brady said on CNBC.

“Alterations to the treatment of carried interest -- and all other capital gains -- discourages investment and jeopardizes economic growth,” Mike Sommers, the chief executive officer of private equity industry group the American Investment Council, said in an emailed statement. The council “appreciates that comprehensive tax reform is a difficult and complicated process, and we look forward to continued engagement with members of Congress and the administration to ensure pro-growth policies are maintained in a new tax code.”

President Donald Trump had made an issue of the special tax benefit during his presidential campaign. He labeled some hedge fund managers as “paper pushers,” who are “getting away with murder.”

Hedge funds could still get the break under the change if they held assets for two years or more before selling. A Ways and Means spokeswoman didn’t immediately respond to a request for comment about the carried interest revision.

The Ways and Means panel is scheduled to begin a four-day series of meetings today to consider amendments to the bill that was released last week. Brady has said he anticipates changes to the bill aimed at simplifying the rules it would impose for partnerships, limited liability companies and other so-called pass-through businesses to qualify for a proposed 25 percent tax rate. The current top tax rate on pass-through income is 39.6 percent.

--With assistance from Sahil Kapur.To contact the reporters on this story: John Voskuhl in Washington at [email protected] ;Melissa Mittelman in New York at [email protected] To contact the editor responsible for this story: Alexis Leondis at [email protected]


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