Carried Interest Tax Calculator 2026
Carried interest (the 20% performance fee partners earn in PE and VC funds) is taxed as long-term capital gains only if the underlying investment is held more than 3 years (IRC §1061). Calculate your federal tax including NIIT, state, and the difference vs ordinary income treatment.
| Carried Interest | — |
| Hold Period | — |
| Qualifies for LTCG? | — |
| Federal Rate (LTCG or Ordinary) | — |
| NIIT | — |
| State Tax | — |
| Total Rate | — |
| Total Tax | — |
| After-Tax Carry | — |
| Tax If Ordinary Income | — |
| LTCG Savings vs Ordinary | — |
How Carried Interest Is Taxed (IRC §1061)
Carried interest (carry) is the share of fund profits — typically 20% — that fund managers in private equity and venture capital receive. Under IRC §1061 (enacted by the 2017 TCJA), carry is taxed as long-term capital gains only if the underlying investment is held for more than 3 years.
If held 3+ years: LTCG rates apply (0%, 15%, or 20% federal depending on overall income, plus 3.8% NIIT for high earners). If held under 3 years: ordinary income rates (up to 37% federal in 2026). The savings on a $1M carry can exceed $170,000 if you hold long enough.
Source: irs.gov IRC §1061 + Treasury Reg 1.1061
API and Pass-Through Mechanics
Carried interest in a fund is technically an 'Applicable Partnership Interest' (API) under §1061. The 3-year rule applies at the asset level — the partnership's holding period of the underlying portfolio company. Most PE funds hold portfolio companies 4-7 years on average, so most carry qualifies for LTCG. VC funds vary more.
The §1061 rule does not apply to: real estate funds (Section 1231 gains), corporate partner interests, or capital interests (your own invested capital, separate from carry). These each have different rules.
State Tax Complications
Most states tax capital gains as ordinary income — California (13.3% top), New York (10.9%), New Jersey (10.75%), Oregon, Minnesota, Hawaii. No state preferential rate for LTCG. This means the federal LTCG savings can be offset by high state ordinary rates.
Some fund managers relocate to no-income-tax states (FL, TX, NV, WY, TN, SD, NH, AK) before realizing large carry distributions. Establish bona fide residency well before the realization event — at least 6 months and documented evidence (license, voter registration, primary home).
Source: state revenue department websites + state tax surveys
NIIT and Future Legislative Risk
Carried interest income above the $250K (MFJ) / $200K (single) threshold also faces the 3.8% Net Investment Income Tax. This applies regardless of LTCG vs ordinary characterization at the federal level.
Legislative risk: Congress has proposed treating all carry as ordinary income multiple times. The Biden and Wyden proposals (2021-2024) would have closed §1061; none passed. The One Big Beautiful Bill Act of 2025 left §1061 intact. Track legislative status before locking in long-term plans.
Carried Interest Tax 2026 Calculator: What Inputs Drive the Math
This carried interest tax 2026 calculator runs four parallel paths so you can see the actual after-tax difference: (1) Sub-3-year hold (ordinary rates up to 37%) (2) 3+ year hold (LTCG 0/15/20%) (3) Plus 3.8% NIIT if your MAGI exceeds the threshold (4) Plus your resident state's rate. Inputs that matter most: carry amount, your other taxable income (drives LTCG bracket), holding-period years, and state of residence. Per the IRC §1061 statute text on Cornell LII, the 3-year clock runs from when the partnership acquired the underlying asset, not when you joined the fund. Updated 2026-06-25.