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

Q&A: Old Hill's Stone On Private Debt, P2P And Credit Bubbles

Jun 6 2017 | 7:52pm ET

While institutional capital continues to flow into the broader private debt sector...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Steinbrugge: Asia-Focused Hedge Funds Offer Great Opportunities

Jun 23 2017 | 3:33pm ET

Emerging market strategies have outperformed their developed-market peers for five...

 

From the current issue of