Carried-Interest Tax Hike Delayed Until 2011

May 28 2010 | 11:03am ET

Hedge fund and private equity managers will pay higher taxes on their share of their funds’ profits, but not just yet.

The tax bill expected to go to a vote this morning in the House of Representatives would close the so-called “carried-interest” loophole beginning on Jan. 1, 2011, rather than this year, according to House Ways and Means Committee Chairman Sander Levin (D-Mich.). Holding off on the tax hike will give those affected by it a chance to adjust, Levin said.

The proposal, which will go to the Senate after the Memorial Day recess, would tax managers’ performance fee income as ordinary income, rather than capital gains, as is the case now. That could push the tax rate on that income up from 15% to 39.6%, the new top rate for ordinary income tax proposed under the legislation.

The bill would also impose the ordinary income tax rate on money earned by hedge fund and private equity honchos who sell part or all of their firms. That provision is designed to keep managers from skirting the main carried-interest rules.

Unsurprisingly, the alternative investments community is not happy.

“This bill would make investment partnerships the only businesses in America whose owners would be ineligible for long-term capital-gains treatment,” Douglas Lowenstein, head of the Private Equity Council, told Bloomberg News.


In Depth

'Smart Beta' Funds In Regulators' Sights, Hedgies May Be Next

Mar 26 2015 | 11:11am ET

Funds that mimic strategies used by active managers for a fraction of the cost could...

Lifestyle

Study: Both Marriage and Divorce Lead to Negative Hedge Fund Performance

Mar 25 2015 | 6:51pm ET

Trouble at home leads to trouble in the market for fund managers, according to researchers...

Guest Contributor

Concerned About Your HFT Exposure? Hedge It!

Mar 26 2015 | 1:06pm ET

High-frequency trading has been a persistent storyline for several years. The trading...

 

Sponsored Content

    Mar 9 2015 | 6:35am ET

    Kelly RodriquesKelly RodriquesAs more investors look to diversify, many are beginning to use retirement funds to invest in alternative assets such as private equity and real estate. Kelly Rodriques, CEO & President of PENSCO Trust Company, explains how companies can connect with those looking to use their retirement accounts in a different way. Read more…

Editor's Note