Capital Deployment Opportunity · Returns
Carried Interest and General Partner Promotes (GP)
Definition
For a sponsor, a profits interest that pays out only if a deal outperforms set return thresholds, aligning the sponsor's upside with investors'. Federal tax law requires a holding period of more than three years, rather than one year, for long-term capital gain treatment of gains on such interests held in connection with investment services[1].
Federal law
A market and contract term. No Act of Congress defines it; the federal laws below apply as described.
- Tax Cuts and Jobs Act (popular name), Pub. L. 115-97, § 13309, 131 Stat. 2130. Imposed a three-year holding period for long-term capital gain on applicable partnership interests held in connection with investment services (26 U.S.C. § 1061). Official text: govinfo.gov, U.S. Government Publishing Office.