Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

What Carried Interest Is, and Why You Should Care

By Dan Caplinger - Updated Feb 15, 2017 at 11:39AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The President's new budget proposes eliminating carried interest, but what exactly does that mean for you? Find out here.

President Obama's new proposed budget is out, and it includes a call to eliminate what's known as the carried interest provisions of the tax code. But what is carried interest, and why should ordinary investors care about it?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at carried interest and its impact on taxes. Dan notes that carried interest is a way that many investment managers get paid, by taking a share of profits from the investments they make. With the rise of private-equity firms Blackstone Group ( BX ), Apollo Global Management ( APO ), KKR ( KKR -0.93% ), and Carlyle Group ( CG ), carried interest has gotten a lot of attention because it enables managers to pay lower long-term capital gains rates on what many would see as compensation for their management services. But proponents argue that carried-interest treatment is fair because the managers' investment is at risk. Dan concludes that big fights about the provision have occurred in the past, and they're likely to repeat themselves this time around as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Blackstone Group L.P. Stock Quote
The Blackstone Group L.P.
BX
Carlyle Group L.P. Stock Quote
Carlyle Group L.P.
CG
Apollo Global Management, LLC Stock Quote
Apollo Global Management, LLC
APO
KKR & Co. Stock Quote
KKR & Co.
KKR
$76.98 (-0.93%) $0.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
652%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.