Article

How the One Big Beautiful Bill Act affects private equity and asset management

Tax bill provides tax planning stability and expands certain business deductions

July 03, 2025
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International tax
Business tax Policy Tax policy Private equity

This article, originally published June 27, has been updated to reflect that Congress passed the One Big Beautiful Bill Act on July 3.

Executive summary: Tax bill effects on investment fund executives and asset managers

Congress on July 3 passed broad taxation-and-spending legislation that could provide strategic planning and investment opportunities for private equity and hedge funds, investment fund executives, and deal teams. 

Tax items in the bill could boost investment in early-stage companies, while estate tax exemptions may rise. Core provisions in the pass-through entity tax deduction, carried interest and capital gains rates remain unchanged, offering some stability. Fund managers should prepare for rapid implementation and consult advisors to adapt to impacts.


Private equity and hedge funds, investment fund executives, and deal teams can expect greater tax planning stability, improved tax treatment of capital expenditures, and expanded tax benefits for domestic investments as a result of the tax package that Congress passed July 3 as part of the One Big Beautiful Bill Act (OBBBA). 

Some of the key tax provisions could free up portfolio company cash and drive strong tax savings for investment fund executives and investors. 

This article highlights some tax items in the OBBBA—and other items left unchanged—that stand out for their potential effects on private equity and hedge funds, fund executives and deal teams.

Pass-through entity taxes (PTET) and state and local taxes

PTET are certain state and local taxes (SALT) paid by partnerships that elect to pay those taxes at the entity level rather than as individuals. They are often fully deductible from federal taxable income according to current law.

After the IRS approved the federal deduction of PTET in 2020 as a “non-separately stated deduction,” asset managers frequently utilized this planning strategy for management companies and, in some instances, carried interest vehicles. Critically, the deduction was not subject to the $10,000 state and local tax deduction limitation (SALT cap) enacted by the Tax Cuts and Jobs Act of 2017 (TCJA).

PTET and SALT in the OBBBA: The OBBBA leaves the PTET deduction unchanged, maintaining favorable federal deductibility for private equity fund and hedge fund managers, who still have access to the full PTET deduction. This will provide cash flow stability to asset managers who benefited in prior years from the PTET deduction generated by management companies or carried interest vehicles. Similarly, the deduction for the New York City unincorporated business tax is not subject to any new limitations.

On the SALT cap itself, the OBBBA increases it to $40,000. There is a series of phaseouts in place for taxpayers with income over $500,000, which can bring the deduction back to the $10,000 limit enacted with the TCJA.

Effects on investment fund executives and other asset managers: Even with the OBBBA's increase of the SALT cap, we expect that many asset managers may not be eligible for the benefit and will still only be able to utilize the $10,000 deduction.

Ongoing access to the PTET deduction and UBT tax deduction is a big win for asset managers that have previously used them. How big? As a reference point, the Joint Committee on Taxation estimated the federal government would have raised more than $786 billion from various new limitations on SALT deductions proposed in preliminary drafts of the bill.

Qualified small business stock (QSBS) benefits

The OBBBA expands qualified small business stock (QSBS) benefits under section 1202. This will likely drive increased investment in QSBS-qualified portfolio companies and provide wider benefits to investors and investment fund executives.

QSBS in the OBBBA: The OBBBA expands QSBS benefits as follows:

  1. Extends tiered benefits for partial QSBS gain exclusion for stock held three and four years, with full exclusion at five years. Current benefits only occur at the five-year holding period, with no benefit at all for three- or four-year holding periods.
  2. Increases the limit of QSBS benefit at the individual level to $15 million per issuer from its current level of $10 million.
  3. Supports domestic small businesses, as the name indicates, by allowing for more businesses to qualify. The target corporation would be limited to $75 million of gross assets at the time of stock issuance, up from $50 million under existing law.

Effects on investment fund executives and other asset managers: With the expansion of QSBS benefits, we expect to see investment funds increase deployment of capital to QSBS-qualifying portfolio companies. Venture capital funds frequently leverage QSBS gain exclusion and could see increased benefits if additional target investments qualify for QSBS treatment.

University endowment excise tax

The OBBBA sets an 8% rate for the university endowment excise tax, which could impact large institutional investors in fund structures.

However, it remains to be seen whether the 8% rate is high enough to drive efforts to mitigate the excise tax or whether it will be absorbed as a cost of doing business.

Estate planning

The asset management industry is seeing an increased usage of estate planning, particularly around gifting interests in carried interest vehicles.

The OBBBA increases the estate and gift tax exemption amounts to $15 million and makes the amounts permanent. The current exemption is approximately $13.99 million, and if Congress hadn't acted, would have dropped to around $7 million after 2025. The Joint Committee on Taxation estimates that these benefits will cost the federal government around $211 billion over the next 10 years.

Section 899

The House of Representatives in May proposed to create a new section of tax code that would have established a framework of retaliatory taxation against countries with taxes the U.S. administration deemed unfair. The new section 899 could have introduced challenges raising funds from foreign investors and increased fund structure complexity.

However, the proposal was removed from the OBBBA after the secretary of the U.S. Department of the Treasury announced a tax agreement with G7 countries. 

Unchanging tax provisions

In light of several tax changes that could create opportunities for private equity, it is also important to note provisions central to the asset management industry that remain unchanged.

The OBBBA does not change the taxation of carried interest, management fee waivers, or long-term capital gains rates. The stability of these factors can help private equity and hedge funds offset the changing nature of other proposals.

Business provisions and portfolio companies

The impacts at the portfolio company level are significant as well. The OBBBA contains business tax provisions that should help free up near-term cash that could benefit operating performance within the general private equity fund investment holding period.

Specifically, the OBBBA restores more favorable tax treatment of various expenses—namely, a return of bonus depreciation, increased interest expense as a function of EBIDTA rather than EBIT, and immediate expensing of domestic research and development costs. The OBBBA makes permanent those so-called Big Three provisions affecting capital expenditures, debt and R&D, respectively. 

What investment fund executives and other asset managers should do next

Private equity and hedge funds, investment fund executives, and deal teams should work with their tax advisor to understand the opportunities the OBBBA may afford them.

Asset managers can take advantage of the opportunity to implement long-term planning strategies due to the stability of long-term capital gains rates, carried interest tax treatment and PTET deductibility.

Funds can assess if QSBS should become a greater part of their strategy, and those who already leverage this benefit can identify if additional portfolio companies fall under the expanded exclusion qualifications.

Deal teams can model how the improved expense provisions can drive near-term cash flow in their portfolio companies and how it should be utilized. Fund founders and general partners can leverage the expanded gift and estate tax exemption as they implement their vision for estate planning. 

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