President Donald Trump has reignited a long-standing debate by proposing to eliminate the carried interest tax break, a policy the commercial real estate industry and other financial groups have relied on to structure deals by classifying their earnings as capital gains rather than ordinary income, benefiting from significantly lower tax rates. While proponents argue that the policy incentivizes long-term investment, critics see it as an unfair advantage for the wealthy.
The push to abolish this tax break aligns Trump with Democratic lawmakers who have long sought its repeal. In his first term, Trump described the loophole as allowing financiers to “get away with murder,” though his 2017 Tax Cuts and Jobs Act only modestly extended the holding period for carried interest from one year to three years. This time, Trump has made its elimination a priority, telling Republican lawmakers during a February 6 meeting that closing the loophole is essential for achieving a balanced budget and extending his 2017 tax cuts.
The chances of this push succeeding seem never greater than before as some Republicans appear to be aligning with Trump on the issue, according to The Hill.
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Some Republicans see it as an opportunity to improve the public perception of their tax policies, which have often been criticized as favoring the wealthy. Representative Dan Meuser (R-Pa.) expressed support for Trump’s stance, stating, “President Trump doesn’t want to see anything perceived as unfair. Certainly for the wealthy, he wants to make sure that all of America gets the benefit of this tax bill.”
Similarly, Representative Rick Allen (R-Ga.) argued that eliminating carried interest could help dispel accusations that Republicans cater exclusively to affluent taxpayers. “We get accused of just looking after the wealthy — and this would include the wealthy,” he said.
Yet, not all lawmakers are fully committed to the idea. Senator John Kennedy (R-La.) acknowledged he was still weighing both sides of the argument. “If we end up [needing] the money, could I vote to get rid of carried interest? Yeah, I could,” he said.
The financial implications of ending carried interest are relatively modest in the context of federal budgeting. The Congressional Budget Office estimates that taxing carried interest as ordinary income would generate $13 billion over ten years—far less than what is needed to offset the $4.7 trillion cost of extending Trump’s 2017 tax cuts or address the $36 trillion national debt.
However, proponents argue that eliminating this tax break would send a powerful signal about fairness in the tax code. Critics like David Kass of Americans for Tax Fairness have called it " one of the clearest examples of how the wealthiest rig the tax code in their favor.”
Meanwhile, Wall Street is gearing up for another lobbying battle to preserve the policy. Associations representing commercial real estate will be out in force, as will other groups such as the National Venture Capital Association, which has already begun mobilizing efforts to defend carried interest, arguing that its repeal could stifle innovation and harm small firms.
“The venture industry is really the outsourced R&D for the country,” NVCA President Bobby Franklin told Bloomberg. He warned that eliminating the tax break could deter investment in early-stage companies at a time when venture capital fundraising and returns have already declined significantly compared to previous years.
The NVCA – and the other groups lobbying for the tax break’s preservation – faces the task of educating a significant number of newly elected legislators about carried interest. The 119th Congress, which began in 2025, welcomed 12 new senators and 63 new representatives. This influx of new lawmakers is notably larger than the turnover seen in 2017, potentially creating a knowledge gap regarding carried interest and its implications for the venture capital industry
“There’s a never-ending education treadmill you have to remain on,” Franklin said.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
