Early Signs Suggest Congress May Be Warming to Eliminating Carried Interest

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.