House Votes to Eliminate Hedge Fund Tax Break

By DAVID KOCIENIEWSKI
NYT

The House passed a bill on Friday that would end a tax break for executives of investment funds, leaving hedge funds, private equity firms and venture capitalists scrambling to ease the effects of the bill before it is taken up by the Senate next month.

The measure was part of a broader tax bill, passed by a vote of 215 to 204, that would extend benefits for unemployed people. It seeks to change the tax treatment of “carried interest,” which is the portion of a fund’s investment gains taken by fund managers as compensation.

Under current rules, carried interest is taxed federally at a rate of 15 percent because it is treated as a capital gain. That contrasts with the tax rate on ordinary income, which can be as high as 35 percent.

The plan approved by the House, which overcame strong lobbying pressure from Wall Street, amounted to a compromise that would tax 75 percent of carried interest as ordinary income and 25 percent as capital gains. It is expected to raise more than $17 billion in tax revenue over the next decade.

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