HR-1091 — Carried Interest Fairness Act of 2025

YourVoice.Now Summary

High-Earner BenefitsCorporate BenefitsTargeted & Unrelated Provisions

Investment fund managers would pay wage-level tax rates on their cut of fund profits — up to 37% instead of 20%.

High-Earner Benefits

Managers' own invested cash — keeps the lower 20% rate

The new rules skip the part of a stake a manager bought with their own money. That portion would still get the lower investment rate, up to 20%.

Fund managers' profit share — taxed up to 37%, not 20%

Fund managers are paid partly from the profits on client money. Today that pay is taxed as an investment gain, at up to 20%; the bill would tax it like wages, at up to 37%.

Fund managers' profit share — now owes Social Security and Medicare taxes

Carried interest is not counted as self-employment earnings today. The bill would count it, adding Social Security and Medicare taxes to that pay.

Selling a fund stake — profits taxed like wages

A manager who sells a stake in the fund now gets the lower investment rate on the profit. The bill would tax that profit at wage rates, for sales made after it becomes law.

Inherited fund stakes — heirs still owe the tax

Today, passing a fund stake to heirs at death can erase the tax on built-up profits. The bill would carry that tax over, so the heirs owe it when they cash out.

Penalty for avoiding the rules — 40%, double the usual

Underpaid tax that comes from arranging deals around the new rules would carry a 40% penalty, twice the usual 20%. Relief requires disclosing the facts up front.

Corporate Benefits

Regular corporations — left out of the new tax rules

Carried interest held by a regular U.S. corporation would be exempt from the new rules. Blank-check companies that go public to buy another firm do not get that break.

Publicly traded partnerships — one new limit delayed 10 years

Publicly traded partnerships skip corporate tax when most of their income is on an approved list. The bill drops carried interest from that list, but not for 10 years.

Targeted & Unrelated Provisions

Family-run investment partnerships — looser test to keep lower rates

Family-run investment partnerships would get a softer version of the test that decides which money keeps the lower rate. A relative's stake could count as the comparison.

Public real estate trust partnerships — one new limit waived

Some partnerships are publicly traded only because they convert into a public real estate trust. Those are left out of the new limit if the trust owns at least half.

More about this bill

Fund managers would pay higher tax on their share of fund profits. Your own tax bill would not change. Hedge fund, private equity, and real estate fund managers are paid partly out of the profits on money they invest for clients. That pay is called carried interest. Today it counts as an investment gain, taxed at lower rates that top out at 20%. Under this change it would be taxed like wages, at rates as high as 37%. Managers would also start owing Social Security and Medicare taxes on that pay. Selling a stake in the fund would count as regular income too. Leaving a stake to heirs would no longer wipe out the tax owed on it. The heirs would owe it instead. A 2017 rule that granted the lower rate after a three-year hold would be repealed. A new section of the tax code would take its place. Several limits narrow the reach. Money a manager puts into the fund out of pocket keeps the lower rate. Firms taxed as regular corporations are left out of the new rules. Publicly traded partnerships would get 10 more years before one limit applies. Family-run investment partnerships would face an easier test. Managers who arrange deals to get around the rules would face a 40% penalty. That is double the usual 20%. The changes would start in the tax year the bill becomes law.

Congressional Summary

Carried Interest Fairness Act of 2025This bill taxes income from carried interest at ordinary income tax rates and makes other changes related to carried interest. (Some exceptions apply.)As background, a general partner in a private equity firm or hedge fund (typically structured as a partnership) generally receives a share of the profits from the assets managed by the general partner (known as carried interest). Under current law, carried interest is characterized (for federal tax purposes) as an interest in a partnership’s capital and, thus, taxed at capital gains tax rates (which may be lower than the applicable ordinary income tax rates). Under the bill, net capital gain and loss attributable to carried interest is recharacterized as ordinary income and loss and, thus, taxed at ordinary income tax rates. (Some exceptions apply.)The bill also treats as ordinary the money (or fair market value of property) received by a partner in a sale or exchange of carried interest. (Thus, the bill extends what is known as the hot asset rule to include carried interest.)Further, the bill deems distributions of carried interest by a partnership in exchange for interest in other partnership property a sale or exchange of such property and, thus, requires the partner to recognize ordinary gain on the distributed carried interest.Finally, the bill imposes self-employment taxes on carried interest income.

Details

Congress: 119th
Chamber: House
Status: summarized
Action: Introduced in House
Action Date: 2025-02-06
Date Added: 2026-06-05
Source: Congress.gov →

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