Carried Interest Fairness Act of 2025
Analysis under review: This bill has generated analysis that may be too generic or incomplete. Clause-level evidence remains available below.
Summary
What This Bill Does
This bill closes the "carried interest" tax loophole by requiring investment fund managers (such as hedge fund and private equity managers) to pay ordinary income tax rates on their performance-based compensation instead of the lower capital gains tax rate. Under current law, fund managers can claim their share of investment profits as capital gains taxed at around 20%, even though this income is effectively compensation for their services. This bill would require that income to be taxed as ordinary income at rates up to 37%.
Who Benefits and How
Federal Government / Taxpayers: The Treasury would collect more tax revenue from wealthy investment fund managers who have been paying preferential rates on what is essentially compensation for their labor. This could reduce the federal deficit or fund other priorities.
Other Taxpayers: This promotes tax fairness by ensuring investment fund managers pay similar tax rates to other professionals (doctors, lawyers, executives) who earn comparable incomes but pay ordinary income tax.
Who Bears the Burden and How
Hedge Fund and Private Equity Managers: Partners providing investment management services to investment partnerships would see their tax bills increase significantly. Their "carried interest" income (typically 20% of fund profits) would be taxed at ordinary income rates (up to 37%) rather than capital gains rates (around 20%). This could represent a near-doubling of their effective tax rate on this income.
Venture Capital Fund Managers: Similarly affected, though some provisions protect "qualified capital interests" where managers have actually invested their own capital alongside investors.
Investment Partnership Structures: The bill creates new compliance and reporting requirements for partnerships with investment services interests, adding administrative burden.
Key Provisions
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Treats net capital gains allocated to "investment services partnership interests" as ordinary income rather than capital gains
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Defines "investment services partnership interest" broadly to include interests held by anyone advising on investments, managing assets, or arranging financing for investment partnerships
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Protects "qualified capital interests" - gains from a manager's own capital contributions remain eligible for capital gains treatment
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Applies to dispositions of partnership interests, treating gain on sale as ordinary income
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Creates a 40% penalty for underpayments resulting from attempts to avoid these rules
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Prevents publicly traded partnerships from treating carried interest income as qualifying income
Evidence Chain:
This summary is generated from the full bill text using AI analysis. Expand "Detailed Analysis" below for identified beneficiaries/burden bearers.
At a Glance
What This Bill Does
Closes the carried interest tax loophole by treating investment fund managers' performance compensation as ordinary income rather than capital gains
Who Benefits
- Federal government through increased tax revenue
- Ordinary taxpayers seeking tax fairness
- Non-investment-manager high earners who already pay ordinary income rates
Who Bears Costs
- Hedge fund managers
- Private equity fund managers
- Venture capital fund managers
Key Policy Areas
Taxation, Financial Services, Investment Management
Primary Purpose
Closes the carried interest tax loophole by treating investment fund managers' performance compensation as ordinary income rather than capital gains
Policy Domains
Legislative Strategy
"Tax reform to close preferential treatment of investment manager compensation"
Identified Gains
- Federal government through increased tax revenue
- Ordinary taxpayers seeking tax fairness
- Non-investment-manager high earners who already pay ordinary income rates
Identified Costs
- Hedge fund managers
- Private equity fund managers
- Venture capital fund managers
- Investment advisors with carried interest
Sponsors
Legislative Progress
In CommitteeMs. Perez (for herself and Mr. Beyer) introduced the following …
Referred to the House Committee on Ways and Means.
Introduced in House
Stakeholder Effects
cui bono?How this legislation distributes effects. Mention counts reflect frequency, not effect magnitude.
Partners providing investment management services to partnerships, Partnerships with investment services partnership interests
Bill Structure & Actor Mappings
Who is "The Secretary" in each section?
- "the_secretary"
- → Secretary of the Treasury
Key Definitions
Terms defined in this bill
Any interest in an investment partnership acquired or held by any person in connection with the conduct of a trade or business involving advising on investments, managing assets, arranging financing, or supporting these activities
Any partnership where substantially all assets are specified assets (securities, real estate, commodities, etc.) and less than 75% of capital is from qualified capital interests held in connection with a trade or business
A partner's interest in partnership capital attributable to actual money or property contributed, amounts included in gross income under section 83, and net income/gain allocations minus distributions
We use a combination of our own taxonomy and classification in addition to large language models to assess meaning and potential beneficiaries. High confidence means strong textual evidence. Always verify with the original bill text.
Learn more about our methodology