House Tax Bill to Impose 2-Year Holding Period for ‘Carried Interest’

Investors will have to hold assets for two years to benefit from a lower “carried interest” tax rate under changes Republicans are making to tax reform legislation, House Ways and Means Committee Chairman Kevin Brady told CNBC Monday.

“We will put in the two-year holding period on carried interest to make sure, really, its focused on those long-term, traditional real estate partnerships,” Brady said.

Under current law, investors must hold assets for 12 months to obtain capital gains tax treatment, which is much lower than the top income tax rate. The use by managers of private equity firms and some hedge funds of this so-called “carried interest loophole” has been controversial for years. As a candidate, President Trump promised to close the loophole.

Brady said that original bill should have included the longer holding period.

Other provisions are also being revised as members of the the Ways and Means Committee rush to get the bill ready for a vote by the full House later this week or early next week. According to people familiar with the matter, Republican lawmakers are considering moving the cap on the mortgage interest deduction to $750,000, up from $500,000 in the bill presented last week.

Another likely change will be to adjust the way small businesses are treated. Under the bill released last week, services firms were excluded from the tax cuts for so-called “pass-through” entities. That prompted rebuke from the National Federation of Independent Businesses, which said it could not support the House GOP bill.