Ending the Carried Interest Loophole Act

Key Points

• This bill targets investment fund managers who receive partnership interests as compensation for their work. It would reclassify much of their income from lower-taxed capital gains to higher-taxed ordinary income, closing what critics call the "carried interest loophole."
• The bill covers managers in private equity, hedge funds, venture capital, and real estate investment who raise capital and invest in securities, commodities, or real estate. It defines these activities broadly to prevent workarounds.
• The bill calculates a yearly "deemed compensation amount" based on a formula that compares how much capital a manager personally invested versus how much profit they can claim. Managers who put in little of their own money but take large profit shares will owe more in ordinary income taxes.
• The bill also prevents managers from dodging the rules by quickly selling their partnership interests. If they sell within a 10-year window, they face an accelerated tax hit that captures the income they would have owed over the remaining period.
• The bill replaces the existing carried interest rule (Section 1061) entirely with a new, more comprehensive framework under a new Section 1299, and it applies to all taxable years beginning after the date the bill becomes law.