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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox. Private credit has exploded in popularity among investors, with the market soaring from $1 trillion in 2020 to $1.5 trillion at the beginning of 2024, according to alternative data provider Preqin . The firm expects this figure to reach $2.6 trillion by 2029. But private credit investing comes with a serious catch. The returns from direct lending are taxed as ordinary income, which has a top federal tax rate of 40.8%, rather than long-term capital gains, for which rates top 23.8%. This can cost investors millions in returns. For instance, a $5 million investment in private credit could incur $4.3 million in tax drag over 10 years and $61 million over 30 years, according to Bernstein Private Wealth Management. There are…
