The Carried Interest Fairness Act and Potential Tax Impact in 2025

The Carried Interest Fairness Act is among the most talked about legislative proposals in the 2025 tax landscape among the alternative investment funds industry. The proposed legislation aims to alter the tax treatment of carried interest income for investment managers. Currently, carried interest is taxed at long-term capital gains tax rate if the underlying investments are held for more than three years. The proposed bill would change that by taxing all carried interest at ordinary income tax rates, ending its favorable tax treatment.

Historical Context

Over the past 20 years, lawmakers have introduced various proposals to increase the tax burden on carried interest. During his first term, President Trump enacted the most significant reform to the taxation of carried interest under the 2017 Tax Cuts and Jobs Act (TCJA). The TCJA extended the holding period required for carried interest to qualify for long-term capital gains treatment from one year to three years.

Next Steps and What to Look For

The Trump administration’s policy on carried interest has not yet been fully defined and current bills on the tax treatment of carried interest are in the beginning stages of the legislative process, so it remains to be seen whether carried interest holders’ eligibility for preferential tax rates will be further curtailed or eliminated altogether.

Fund managers should follow the latest developments and analyze how the proposed legislation might affect them.

For more information on how this proposed policy could impact you and your business, please contact Alicja Mierzwa, George Teixeira, or your Anchin Relationship Partner. We will continue to monitor this proposal closely and will provide updates as new details emerge.