Exploring the Taxation of Carried Interest in the United States

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Exploring the Taxation of Carried Interest in the United States

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Jayer Henri 14 May 2025

Taxation of carried interest impacts fund managers’ profits, raising ongoing policy debates on income classification and tax rate fairness.

The taxation of carried interest in the United States refers to how investment managers are taxed on profits earned from managing investment funds. Instead of being treated as ordinary income, carried interest is often taxed at the lower long-term capital gains rate, which has sparked ongoing policy discussions. Critics argue that this creates a tax loophole, while supporters claim it incentivizes long-term investment. The issue is particularly relevant in private equity and hedge funds, where performance-based compensation is common. Understanding how carried interest is taxed is crucial for financial professionals, policymakers, and investors seeking transparency and equity in the tax code.

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