THESE PROVISIONS WERE INITIALLY DISCUSSED AS PART OF THE BILL BUT DID NOT MAKE ITS FINAL VERSION THAT PASSED THE HOUSE, PROVIDED HERE FOR REFERENCES OF WHAT COULD HAVE HAPPENED

A major tax overhaul is gaining traction in Congress—and it’s got the private equity world on edge.

The proposal would eliminate the “carried interest loophole” by reclassifying income earned by fund managers from capital gains to ordinary income—potentially DOUBLING the tax rate on this income.Here’s what you need to know

What Is Carried Interest?

“Carried interest” is the share of profits that investment fund managers earn—often 20% of the gains—as a performance fee.
Under current law, it’s taxed as a long-term capital gain (20%), not ordinary income (up to 37%).Critics say: That’s not fair. It’s compensation for services, not investment return.

What the Bill Does (New Section 710):

✅ Treats carried interest as ordinary income
✅ Applies to investment services partnership interests (ISPIs)—i.e., when fund managers earn ownership in return for managing other people’s money
✅ No capital gains treatment unless the manager invested significant personal capital
✅ Distributions & sales of ISPI now trigger immediate taxation, often as ordinary income
✅ Adds self-employment (SECA) tax to this income
✅ Imposes a 40% penalty for abusive tax strategies
✅ REPEALS the previous 3-year holding period workaround (Section 1061)

💼 Who’s Affected?

🔸 Private equity
🔸 Venture capital
🔸 Hedge funds
🔸 Real estate investment partnerships
🔸 Any firm where partners earn profits from managing investments

⚖️ Why This Matters

• 📈 Raises billions in tax revenue
• ⚖️ Levels the playing field: treats investment managers’ compensation like other high earners’
• 🗣️ Critics argue it discourages investment & entrepreneurship

📅 Effective Date:

✔️ Applies to tax years ending after enactment
✔️ Sales & transfers of carried interest taxed immediately upon passage

💬 This is the boldest attempt yet to end a loophole long criticized by presidents from Obama to Trump to Biden.
🧨 If passed, it could reshape how fund managers are paid—and taxed—for years to come.