What is Carried Interest?

February 06, 2013

Today the Private Equity Growth Capital Council released a new educational “whiteboard” video to address common misconceptions about carried interest. “What is Carried Interest” provides an easy-to-understand explanation of carried interest and why it’s appropriately taxed as a capital gain.

Carried interest is taxed at the capital gains rate because it is a profits interest on a long-term capital asset.  This policy encourages the risk taking that is required to save, start and grow companies. Changing the taxation of carried interest would upend a long-standing, successful policy that has helped America prosper for more than 100 years. It is commonplace in partnerships including private equity, venture capital, real estate partnerships and general business partnerships.

“Carried interest is commonly misunderstood in public discourse. Our newest whiteboard video demystifies the topic and answers questions about what carried interest really is, how it works and why it’s appropriately taxed at the capital gains rate,” said Steve Judge, president and CEO of the Private Equity Growth Capital Council. “Carried interest is an important part of the private equity business model – a model that is responsible for pumping hundreds of billions of dollars into the U.S. economy each year, while strengthening businesses for the long-term.”

 

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