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The tax treatment of carried interests was changed with the enactment of Section 1061 of the Internal Revenue Code as part of the 2017 Tax Cuts and Jobs Act. After issuing proposed regulations last summer, the Internal Revenue Service (IRS) and the Department of the Treasury issued final regulations under Section 1061 on January 7, 2021. For a description of the proposed regulations, see
While a one-year holding period is generally required for long-term capital gains, Section 1061 generally imposes a three-year holding period requirement in order to receive long-term capital gain treatment for gains allocated (or otherwise recognized) with respect to an applicable partnership interest (API). An API is defined as any interest in a partnership that, directly or indirectly, is transferred to (or is held by) a taxpayer in connection with the performance of substantial services by the taxpayer (or a related person) in an