Connecticut Creates Deduction for Venture Capital Income

Connecticut legislation creates a personal income tax deduction for general partners who receive income from a venture capital fund established on or after January 1, 2018. The deduction applies to tax years beginning on or after January 1, 2018.

Who Qualifies as A General Partner?

General partners qualifying for the deduction include partners of funds organized as a:

– general partnership;

– limited partnership; or

– limited liability partnership.

It also includes members or member-managers of limited liability companies treated as a partnership for federal income tax purposes.

What Venture Investments Qualify?

The deduction applies only to investment income received from Connecticut-based bioscience businesses that:

– manufacture pharmaceuticals, medicines, medical equipment, medical devices, and analytical laboratory instruments;

– operate medical or diagnostic testing laboratories; or

– conduct pure research and development in the life sciences.

How Does A General Partner Compute The Deduction?

The deduction equals the income a general partner receives:

– from the fund’s sale, transfer, exchange, or other disposition of equity interests in a Connecticut bioscience business and

– for management of the fund.

A general partner must determine his or her management income using an investment ratio. This ratio represents the total amount of money invested by the venture capital fund in a bioscience business divided by the total amount of capital raised by the fund.

Act 18-147 (S.B. 266), Laws 2018, July 1, 2018 and applicable as noted

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CCHTaxGroup

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