The Effects of Tax Reform on Private Equity

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA), the most extensive overhaul of the United States tax regime in over thirty years. The new tax law will have a significant impact upon individual taxpayers in all income tax brackets, all businesses and every sector of the economy, including private equity. This alert provides a brief summary of some of the provisions that are likely to impact private equity, both at a fund level and the portfolio company level, and provides some insight in terms of what private equity professionals should consider in their tax structuring going forward. Fund Level Considerations Carried Interest. The TCJA now imposes a three-year holding period in order to qualify for long term capital gains rates with respect to profits interests held in connection with the performance of services in the business of raising or returning capital, investing in stocks or securities, or “developing” such assets.…

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