The term carried interest essentially refers to profits reaped by private equity executives and hedge fund managers for the services they perform. At most private equity firms and hedge funds, the share of profits paid to managers is about 20 percent.
Such profits are now taxed at a long-term capital gains rate of about 20 percent, about half the rate at which top earners’ income would otherwise be taxed.
Critics have argued that these executives should pay the higher rate because the profits in question are effectively income.
President Trump pledged during the campaign to close the loophole, once proclaiming that because of it, “hedge fund guys are getting away with murder.”
Industry groups disagree. They argue that investment managers deserve to be taxed at the lower rate because they take entrepreneurial risks.
The impact of extending the minimum holding period for investments that qualify for the break will probably be limited, given that, according to the investment data provider Preqin, the average holding period for private equity managers in a fund is about six years.
Mr. Willens and other experts said that the proposed change could affect some hedge fund managers who typically invest for shorter periods. But for most wealthy investment managers, he said, it would not make much difference.
“As a practical matter,” Mr. Willens said, “I don’t think it will have any impact.”