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The Inflation Reduction Act of 2022 and “Carried Interest”

August 16, 2022

In the news is “carried interest”, which is taxed at a lower 20% capital gains rate, rather than the top 37% marginal tax rate that applies to ordinary income. The special rate on carried interest owes its continued existence in the tax code to Arizona Senator Kyrsten Sinema, who championed its continuation, not elimination, in return for her vote, helping secure passage of the Inflation Reduction Act of 2022, as recently signed by President Biden. Special tax treatment of carried interest is incentive to hedge fund partners, venture capitalists, and real estate partners to invest in longer-term and riskier projects that might be viewed less-favorably if those profits were taxed at the ordinary income tax rate.

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