Senate Committee Softens Carried Interest Provisions

WASHINGTON, DC-Senate Democrats are close to an agreement that would scale back the proposed tax rate changes to carried interest in a bill passed by the House of Representatives at the end of May. A new version of the Senate’s tax extenders bill–which contains the carried interest proposal–has been introduced.

In it, the current rate of 15%–the capital gains rate–would remain in place for 2010. For 2011 and 2012, half of the carried interest profit would be taxed at the ordinary income rate and half at the capital gains rate for an effective tax rate of 30%. In 2013, that blend would shift to 65% taxed at the ordinary income rate and 35% at the capital gains rate for effective tax rate of 32.7%. In addition, an exception has been carved out for long-term holders of real estate. If an asset is held for seven years or more, the formula would be 55% ordinary tax rate and 45% capital gains tax for an effective rate of 30.7%.