A carried interest (sometimes referred to as a profits interest) is typically granted to the sponsor/manager of private equity, hedge fund, venture, or similar funds and entitles the holder to a percentage of the fund’s profits. The income tax aspects of carried interests have been controversial for a long time. Holders of carried interests argue that the profit from a carried interest is capital in nature and should be taxed as such. Counterarguments suggest that the capital interest is the same as compensation and taxed as ordinary income. There have been presidential campaign promises and legislative proposals to “do away with the carried interest loophole.” Most recently, President Trump has suggested eliminating the current tax treatment of carried interest to help offset the cost of the sweeping tax bill that is expected to be enacted in 2025. 

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