Carried Interest Fairness Act of 2025

This bill, the Carried Interest Fairness Act of 2025, changes how profit shares paid to people who manage investment partnerships are taxed. It would tax most of these profits—and gains from selling that partnership interest—like regular pay (ordinary income), not at lower capital‑gains rates . Dividends tied to these interests would not get the lower “qualified dividend” rate, and special small‑business stock breaks would not apply to them. Income from performance‑based pay in investment entities or SPACs would also be taxed as regular income, while most C‑corporations are not affected (SPACs are an exception). This income would also count toward self‑employment tax.

If a person receives a partnership interest for doing work, they must count its value as income when they get it, based on what they’d receive if the partnership sold its assets and paid out; the default is to count it right away unless they choose otherwise. There is an exception for the part of the stake that comes from the person’s own invested money; if that piece is treated the same as other true investors, it can keep capital‑gain treatment.

• Who is affected: People who manage investment partnerships; people who get partnership interests for doing work; managers with performance‑based pay in investment entities or SPACs; some publicly traded partnerships; most C‑corps are excluded (except SPACs) .
• What changes: Most profits and sale gains taxed as ordinary income; “qualified” dividend rates and QSBS breaks do not apply; certain property distributions can trigger ordinary income; income counts for self‑employment tax; publicly traded partnerships can’t count carried‑interest income as qualifying income; penalties can rise to 40% for abusive underpayments .
• When: Applies to partnership interests transferred after the law is enacted; most changes start for tax years ending after enactment; sales and distributions after enactment; the SPAC/performance‑pay rule takes effect on enactment; the publicly traded partnership rule has a 10‑year transition .