One provision of the proposed Inflation Reduction Act would close the “carried interest loophole.” Currently, partners aren’t taxed when a profit’s interest is issued, but when the income is realized by the partnership. At that point, the income usually is taxed at the maximum long-term capital gains rate of 23.8% (compared with a top income-tax rate of 40.8%). As part of the proposed legislation, net applicable partnership gain would be treated as a short-term capital gain and taxed at the individual’s wage income rate. Exception: If a partner held an interest in a partnership for five years, gain would be taxed at long-term capital rates. Changes would be effective starting Jan. 1, 2023.
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