Carried Interest Vesting Tax Calculator
Carried interest — the share of profits earned by PE/VC fund managers — is taxed at LTCG rates if the underlying investment is held 3+ years (post-2017 Tax Cuts and Jobs Act). Shorter holding periods trigger short-term capital gain treatment (ordinary rates up to 37%).
Carried Interest Tax Background
Pre-2018, carry was LTCG regardless of holding period. The 2017 Tax Cuts and Jobs Act added §1061 requiring 3-year holding period of the underlying investment for LTCG treatment. Shorter holdings trigger short-term capital gain (ordinary rates).
State Tax Considerations
New York, California, Connecticut have proposed or enacted additional state-level carry surtaxes. New York's failed 2023 'fairness fix' would have added 17% state surtax. Most managers structure GP entities in no-tax states (Texas, Florida) to minimise state exposure.
Legislative Risk
§1061 is a frequent target. The Biden-era proposal would have eliminated capital gain treatment entirely. The OBBB (2025) preserved current treatment but Congress can revisit. PE managers monitor proposed §1061 amendments closely.
Source: IRC §1061 Partnership Interests Held In Connection With Performance of Services; Treasury Regulations. Last updated: May 2026.