Define: Carried Interest

Carried interest is a share of the profits that a general partner in a private equity or hedge fund receives as compensation for managing the fund.

Yes, carried interest is typically taxed at a lower capital gains tax rate, rather than the higher ordinary income tax rate.

Yes, there are specific regulations and tax laws that govern how carried interest is treated for tax purposes, including the Tax Cuts and Jobs Act of 2017.

Carried interest is typically calculated as a percentage of the fund’s profits, often around 20%.

In most cases, only general partners of private equity or hedge funds are eligible to receive carried interest.

There may be restrictions on how and when carried interest can be distributed, depending on the terms of the fund’s partnership agreement.

Carried interest can impact the overall returns for investors in the fund, as it represents a portion of the profits that would otherwise go to the investors.

There have been ongoing discussions and proposals to change the tax treatment of carried interest, including potentially taxing it as ordinary income rather than capital gains.

The potential benefits of receiving carried interest include the opportunity for significant profits, while the risks include the possibility of clawbacks and the impact of changes in tax laws.