The federal income tax rules that apply to private equity funds and investors have been the subject of much debate, mainly due to the perception by some members of Congress and the public that the rules include tax benefits that unfairly favor the wealthy. Although President Biden’s campaign and Green Book agendas and recent House and Senate tax proposals included targeted changes that would have generally increased taxes on private equity investors, not all such proposed changes are included in the version of the Build Back Better Act (H.R. 5376) passed by the House on November 19, 2021 or the proposed updated text of H.R. 5376 released by the Senate Finance Committee on December 11.
As discussed below, H.R. 5376 would, if enacted, still make certain changes to the taxation of private equity. The current bill would also impose a 5% or 8% surtax on wealthy individuals – including wealthy fund investors (i.e., a 5% surtax on individual incomes over $10 million and an additional 3% surtax on incomes over $25 million).
As of the time of writing, H.R. 5376 is stalled in the Senate and the fate of the bill is uncertain. Private equity funds and fund investors should continue to monitor the proposed legislation – in particular, as it relates to the following tax considerations:
Posted by Jessica Ji, Associate Editor, Wealth Strategies Journal.