What is Carried Interest?

What is Carried Interest?

Recent proposals from policymakers in Washington to change the tax treatment of carried interest highlight a general misperception of what carried interest is and why it is appropriately treated as a capital gain.  In an effort to better explain carried interest, the Private Equity Growth Capital Council released today a new educational whiteboard video entitled, “What is Carried Interest?” to address common misconceptions about carried interest. The video runs just over 3 minutes. A link to view the video is available at the end of this article.

“Carried interest is commonly misunderstood in public discourse. Our newest whiteboard video demystifies the topic and answers questions about what carried interest really is, how it works and why it’s appropriately taxed at the capital gains rate,” said Steve Judge, president and CEO of the Private Equity Growth Capital Council. “Carried interest is an important part of the private equity business model – a model that is responsible for pumping hundreds of billions of dollars into the U.S. economy each year, while strengthening businesses for the long-term.”

Carried interest is taxed at the capital gains rate because it is a profits interest on a long-term capital asset.  This policy encourages the risk taking that is required to save, start and grow companies. Changing the taxation of carried interest would upend a long-standing, successful policy that has helped America prosper for more than 100 years. It is commonplace in partnerships including private equity, venture capital, real estate partnerships and general business partnerships.

The video is the latest offering from the PEGCC’s “Private Equity at Work” initiative, an ongoing effort to educate people about key aspects of the private equity industry (www.PrivateEquityAtWork.com).

The Private Equity Growth Capital Council is an advocacy, communications and research organization and resource center established to develop, analyze and distribute information about the private equity and growth capital investment industry and its contributions to the national and global economy. Established in 2007, the PEGCC is based in Washington, D.C. (www.pegcc.org).

Click HERE to view the video “What is Carried Interest”.

© 2013 PEPD • Private Equity’s Leading News Magazine • 2-7-13

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