Sen. Kyrsten Sinema agreed to the Inflation Reduction Act but cut the carried-interest tax provision — here's what that means for wealthy investors

The bill gained the support of all 50 Democrats in the US Senate after Sen. Sinema agreed to back it.

The carried-interest tax provision was removed because of her cooperation.

Sinema said that they have agreed to remove the carried-interest tax provision, protect advanced manufacturing, and boost the clean-energy economy in the Senate's budget-reconciliation legislation.

It is a victory for some of the wealthiest Americans. There is a loophole that can be used to reduce taxes for people who manage money for a living. Fund managers get a cut of the profits from their investments. Capital gains are taxed at a lower rate than salary paychecks and bonuses. Fund managers have avoided restrictions that would've made it harder for them to keep paying low tax rates on their income since the provision has been removed.

Since the tax break was brought to the attention of Congress in 2007, both Republicans and Democrats have advocated to eliminate it. The loophole hasn't been closed yet.

Private-equity funds have to hold on to their portfolio companies for three years before cashing out under a Trump-era policy.

It wouldn't have closed the loophole completely if the Inflation Reduction Act's provision had been in place.

The average holding period for a private-equity fund in 2020 was already over five years, according to a report by eFront.

The carried-interest tax provision was part of the inflation reduction act. The $790 billion they said would be produced as a result of the bill was underestimated by lawmakers.

A new hard minimum on taxes that America's largest corporations have to pay is still part of the bill.

Schumer said that the agreement preserves the major components of the Inflation Reduction Act, including reducing prescription drug costs, fighting climate change, and closing tax loopholes exploited by big corporations and the wealthy. He said the final version of the bill would be released Saturday.

"Sinema's cooperation is another critical step toward reducing inflation and the cost of living for America's families," the president said.

Sinema's opposition to the provision had opened the possibility that either she or Sen. Joe Manchin of Virginia might upend the inflation reduction act because of it. The president's plan was shut down by the lawmakers.

Carrying interest is a tax loophole that allows wealthy investors and hedge fund managers to pay less tax. Manchin wants to close the loophole, but Sinema is against eliminating the tax break.

The provision would be cut after Sinema's announcement.

Requests for comment from Manchin and Sinema were not responded to.