$*****$

Scenario $3$: Carried Interest Loophole?

Partner in an investment management firm receives $$2\mathrm{.}5$ million in carried interest.

The underlying assets were held for more than $3$ years.

Wages: None

Qualified Dividend Income: $$20,000$

Itemized Deductions: $$50,000$

Allowable deduction for self$-$employment tax: None $($but SE tax applies to partnership income$)$

Calculate:

AGI, Taxable Income, and Total Tax Liability

Debate whether the tax treatment of carried interest is fair, considering loopholes and proposals to change the rules.