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Asset management and the One Big Beautiful Bill Act: Implications of tax changes

What new tax rules mean for fund structure, exits, investor returns and more

September 09, 2025
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Financial services Business tax Tax policy Asset management

Executive summary: Tax relief for asset management firms

The One Big Beautiful Bill Act (OBBBA) introduces durable tax changes that affect asset management firms—private equity, venture capital, hedge funds, small business investment companies (SBICs) and business development companies (BDCs). From business tax relief provisions to expanded investment incentives to global tax reform, the OBBBA introduces planning opportunities and structural considerations that affect fund-level economics, portfolio strategy and investor outcomes.

This article breaks down key provisions and explains what they mean for asset managers navigating a new era of tax certainty and complexity.

Asset management firms face a combination of enhanced tax benefits and business challenges stemming from tax provisions in the OBBBA. Now that there is a federal tax policy roadmap for the foreseeable future, here is a closer look at key OBBBA tax items and their implications for asset management firms.

Tax treatment of R&D expenses

The OBBBA makes domestic research and development (R&D) costs fully deductible on a permanent basis, starting with 2025. Foreign R&D spending is still amortized over 15 years.

Qualified small businesses may be able to apply full expensing retroactively to accelerate deductions for expenses currently being amortized.

Learn more about the technical changes to the tax treatment of R&D expenses and the implications for businesses.

What it means for asset management

Immediate expensing of domestic R&D costs allows asset managers to deduct investments related to:

  • Developing new financial models, algorithms or trading platforms if they qualify as experimental
  • Data analytics and technology aimed at improving investment processes
  • Innovative platforms developed to enhance the investor experience

For funds that control portfolio companies, this change could improve cash flow and influence fund-level distribution timing. Onshoring R&D may become more attractive, especially for tech-driven portfolio companies.

Business interest expense deduction limitation

The OBBBA returns to the original Tax Cuts and Jobs Act (TCJA) calculation for business interest expense limitations. It allows the addback for depreciation, depletion and amortization to the adjusted taxable income calculation, effectively allowing deductions up to 30% of earnings before interest, taxes, depreciation and amortization (EBITDA). This provision is permanent.

Learn more about the technical changes to the business interest expense limit under section 163(j) and the implications for businesses.

What it means for asset management

Restoring the EBITDA-based limitation enhances interest deductibility for funds using leverage. A higher adjusted taxable income (ATI) means more interest expense can be deducted, improving after-tax cash flow and potentially enhancing returns.

Fund managers should revisit acquisition models, waterfall structures and capitalization elections to assess impacts on carried interest timing and fund-level distributions. Hedge funds using leverage for investment strategies may also benefit, though modeling is needed to assess the impact on fund-level tax distributions.

Bonus depreciation

The OBBBA introduces significant changes to 100% bonus depreciation, making it permanent for most property acquired after Jan. 19, 2025, and establishing a new temporary allowance for qualified production property.

Learn more about the technical changes to bonus depreciation and implications for businesses.

What it means for asset management

Permanent 100% bonus depreciation boosts after-tax cash flow at the management company and portfolio company levels. For portfolio companies, immediate expensing of capital investments improves EBITDA and supports reinvestment or distributions.

Fund managers should reassess acquisition models and exit strategies to reflect accelerated depreciation benefits. Cost segregation studies—especially for office buildouts—are gaining traction among asset managers seeking to optimize deductions. Infrastructure funds and real estate-heavy portfolios may benefit from the new treatment of qualified production property, provided they meet the activity thresholds.

Exclusion of gain on the sale of qualified small business stock

The OBBBA expands the gain exclusion rules for the sale of qualified small business stock (QSBS), mainly through the following three changes applicable to QSBS issued after July 4, 2025:

  • Provides a tiered exclusion: Allows taxpayers a 50% exclusion for shares held at least three years, a 75% exclusion for shares held at least four years, and a 100% exclusion for shares held at least five years.
  • Increases per-issuer limitation: Raises the per-issuer gain exclusion cap from $10 million to $15 million (indexed for inflation) while still leaving available the 10-times-basis limit if greater.
  • Increases corporate-level gross asset threshold for qualification: Increases the gross asset threshold from $50 million to $75 million (also indexed for inflation).

Learn more about the technical changes to the exclusions for small business stock and the implications for businesses.

What it means for asset management

Expanded QSBS exclusions incentivize earlier-stage investments and broaden the pool of qualifying portfolio companies. Private equity, venture capital and SBIC funds can now structure exits more flexibly across three-, four- and five-year horizons.

To maximize after-tax internal rate of return, fund managers should model exit timing against the tiered exclusion thresholds and consider organizing QSBS-eligible investments into dedicated fund vehicles or sub-portfolios. This segmentation allows for targeted tracking of holding periods, streamlined compliance with QSBS eligibility rules, and clearer communication with investors about the tax benefits tied to specific investments.

SBICs, which tend to target companies with net income of $8 million or less, stand to benefit significantly from the increased per-issuer cap and asset threshold. Private equity funds with growth-stage investments should reassess holding period strategies to capture the full benefit.

SALT cap and PTET

The OBBBA raises the state and local taxes (SALT) cap to $40,000 beginning in 2025 through tax year 2029, after which it will revert to $10,000. The limitation is phased down for taxpayers with modified adjusted gross income (AGI) over $500,000 for the same period. Both the limitation and the modified AGI threshold are increased by 1% each year through 2029.

Meanwhile, the OBBBA makes no changes to the deductibility of pass-through entity taxes (PTET), what types of taxpayers can make state PTET elections, or the ability of taxpayers to make state PTET elections.

The final legislation omitted some proposals that would have severely restricted the ability of certain financial services businesses to benefit from PTET regimes. The omitted proposals could have had significant negative impacts on after-tax cash flows for business owners.

Learn more about the technical changes to the SALT cap and the implications for taxpayers.

What it means for asset management

The unchanged PTET treatment is advantageous for fund managers who rely on entity-level deductions to reduce federal taxable income. Management companies and carried interest vehicles can continue leveraging PTET elections.

However, the phasedown of the SALT cap for high earners means many executives may still be limited to a $10,000 deduction, even with the headline increase. Firms should model the combined impact of PTET elections and SALT cap phaseouts on partner-level cash flow and consider whether state-level conformity will affect planning in jurisdictions like New York and California.

Qualified business income deduction

The OBBBA makes permanent the qualified business income (QBI) deduction at the current 20% rate. Certain pass-through entities are eligible. This was a temporary provision in the TCJA that was set to expire after 2025.

Learn more about the technical changes to the QBI deduction and the implications for businesses.

What it means for asset management

The permanence of the QBI deduction provides long-term tax planning certainty for management companies and carried interest vehicles. Firms should revisit entity structuring decisions, especially for new funds, to ensure optimal use of the deduction.

Strategic modeling can help firms evaluate whether S corporation or partnership structures yield better after-tax outcomes, particularly when balancing owner compensation and QBI. For partnerships, adjusting guaranteed payments and profit allocations may enhance the deduction, but that must be carefully coordinated with investor expectations and compliance requirements 

Wealth and estate planning tax planning

The OBBBA permanently increases the lifetime estate and gift tax exemption to $15 million per individual (or $30 million for married couples) beginning in 2026, with inflation indexing starting in 2027. This change eliminates the previously scheduled reduction to pre-2018 levels and provides long-awaited certainty for long-term wealth transfer planning.

The legislation also preserves the step-up in basis at death and does not introduce new restrictions on valuation discounts or grantor trust strategies.

Learn more about tax changes in the OBBBA that affect individuals

What it means for asset managers

The increased exemption indefinitely opens a window for general partners and fund principals to transfer interests in carried interest vehicles, management companies and other fund economics potentially without triggering federal estate or gift tax. Estate planning tools—such as grantor retained annuity trusts (GRATs), family limited partnerships, and sales to intentionally defective grantor trusts—remain viable and may be more attractive under the higher exemption.

Asset managers should coordinate with private client advisors to model the impact of gifting fund interests. For firms with multigenerational ownership or succession planning needs, the exemption increase supports more robust wealth transfer strategies and long-term legacy planning. 

U.S. international tax reforms

American competitiveness: Tax rates for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) were initially designed to encourage U.S. companies to keep intangible assets and the associated profits within the United States. Together, they aim to balance American competitiveness globally with the federal government’s need for revenue.

The OBBBA maintains those concepts but modifies FDII and GILTI by:

  • Modifying the calculations to remove exclusions based on fixed asset investment and soften expense allocation requirements
  • Slightly increasing the corresponding effective tax rates (ETRs) and changing the foreign tax credit limitation
  • Renaming to foreign-derived deduction eligible income (FDDEI) and net controlled foreign corporation tested income (NCTI), respectively

Profit shifting and base erosion: The base-erosion and anti-abuse tax (BEAT) is a minimum tax designed to prevent large multinational corporations from avoiding U.S. tax liability by shifting profits abroad. The OBBBA permanently lowered the scheduled BEAT rate from 12.5% to 10.5% and eliminated the unfavorable treatment of certain credits that could be applied against regular tax liabilities after Dec. 31, 2025. 

Learn more about U.S. international tax reforms in the OBBBA.

What it means for asset management

Fund managers with offshore structures must reassess foreign tax credit optimization and how interest and R&D exclusions affect residual U.S. tax. The elimination of qualified business asset investment (QBAI) and deemed tangible income return (DTIR) from certain calculations simplifies modeling but may increase exposure. Restructuring foreign holdings or shifting R&D onshore could enhance FDDEI benefits.

Hedge funds with global operations should review intercompany pricing for services, technology and management functions to ensure compliance with transfer pricing rules. They should also assess how platform structuring—such as the location of servers, personnel and decision making—affects sourcing and residual U.S. tax exposure under the revised FDDEI and NCTI rules.

For venture capital funds with international exposure, the renamed provisions may affect exit planning and repatriation strategies by increasing residual U.S. tax on foreign earnings and limiting the benefit of deferral. Fund managers may need to adjust holding structures or accelerate repatriation to align with the new foreign tax credit limitations and higher effective tax rates.

Portfolio companies

Our series of articles covering industry articles explain how OBBBA tax changes could affect portfolio companies in the following industries:

Adapting to OBBBA changes: Next steps for asset management firms

OBBBA tax provisions represent significant opportunities for asset management firms, but they come with eligibility rules and planning considerations. Firms can work with their tax advisor to align their business objectives to OBBBA changes by taking the following steps:

  • Talk to your tax advisor to assess how business tax provisions align with your business objectives.
  • Review your capital investment, R&D and financing plans to align with the new incentives.
  • Model your tax position under the new rules to identify savings opportunities. Leveraging tax technology can enhance modeling precision, streamline compliance workflows and improve visibility across capital; R&D; and federal, state and international tax positions—ultimately supporting more agile and informed decision making.
  • In any transaction, work with an M&A specialist on either the buy- or sell-side when material attributes exist on the target’s balance sheet.

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