Carried Interest 2011

Carried Interest 2011

Carried Interest Tax Hike Passes House, Not Enacted til 2011

Hedge fund and private equity managers will have to pay an increase on their taxes, but not until 2011.  The U.S. House of Representatives voted to eliminate the tax benefit for carried interest and if the Senate approves the bill, hedge funds and private equity managers will feel a significant cut in their earnings next year.

Under current tax code, carried interest is treated as capital gain and taxed at only 15% but that would be changed to tax carried interest as ordinary income which can be up to 35%.   The measure passed in the House by a vote of 215-204.
The House passed a bill on Friday that would end a tax break for executives of investment funds, leaving hedge funds, private equity firms and venture capitalists scrambling to ease the effects of the bill before it is taken up by the Senate next month.

The measure was part of a broader tax bill, passed by a vote of 215 to 204, that would extend benefits for unemployed people. It seeks to change the tax treatment of “carried interest,” which is the portion of a fund’s investment gains taken by fund managers as compensation.

The plan approved by the House, which overcame strong lobbying pressure from Wall Street, amounted to a compromise that would tax 75 percent of carried interest as ordinary income and 25 percent as capital gains. It is expected to raise more than $17 billion in tax revenue over the next decade.   Source

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