The One Big Beautiful Bill Act – Will it be Beautiful for Fund Managers?

On May 22, the House of Representatives narrowly passed one of the most significant tax reform packages since the Tax Cuts and Jobs Act (TCJA) of 2017, known as the “One Big Beautiful Bill Act” (H.R. 1 or the Bill). As of this writing, the bill is being sat with the Senate for approval. It is most likely that this bill will not pass a Senate vote in its current form and will undergo substantial changes.

The most significant win for fund managers from the One Big Beautiful Bill Act is that the current carried interest loophole remained intact. Carried interest (compensation for managing investments) is often taxed at the lower long-term capital gains tax rate (currently 20% plus a potential 3.8% net investment income tax) instead of the higher ordinary income tax rate (up to 37%). While the House left carried interest alone, some changes could affect fund managers.

Key Tax Provisions That Could Impact Fund Managers

Bonus depreciation and Section 179

Under current law, bonus depreciation was established at 100% for eligible property placed in service between 2018 and 2022. This rate is set to gradually phase down to 0% in 2027. The special depreciation allowance, also known as bonus depreciation, for certain eligible property has been extended. Taxpayers are now permitted to immediately expense 100% of the cost for qualified property acquired after Jan. 19, 2025, and before Jan. 1, 2030.

Under current law (IRC §179), taxpayers can choose to expense the cost of qualifying property immediately, instead of recovering these costs through depreciation deductions, subject to certain limitations. The Bill raises the maximum amount a taxpayer can expense under IRC §179 to $2.5 million. The phase-out threshold will be raised to $4 million in 2025.

Business Interest Limitation

The Bill reinstates the section 163(j) interest deduction limitation, calculated using income that excludes deductions for depreciation, amortization, or depletion. This provision applies to taxable years beginning after Dec. 31, 2024, and before Jan. 1, 2030.

Payments from Partnerships to Partners

The Bill makes section 707(a)(2) self-enacting, addressing payments from partnerships to partners who act in capacities other than as partners regarding services or contributions. The partnership disguised sale rules can apply when a partner contributes property to or performs services for a partnership and subsequently receives a related direct or indirect allocation and distribution from the partnership. If these rules are triggered, the transaction is treated as if it occurred between the partnership and an unrelated party, or between two or more partners acting in capacities other than as partners of the partnership. 

The Bill shifts this responsibility to the IRS, outlining specific instances where it would not apply. This provision is not retroactive.

SALT Deduction Cap

The current SALT cap allows individuals who itemize deductions to deduct up to $10,000 in state and local taxes. Over the past several years, most states with an individual income tax have enabled pass-through entity owners to bypass this limit with an entity-level tax on the business.

Under the provisions in the current Bill, effective from 2025, the annual SALT cap limitation would increase from $10,000 to $40,000, subject to a phase-out rule. For married taxpayers with an adjusted gross income (AGI) over $500,000, the $40,000 SALT cap will be reduced by 30% for each dollar exceeding $500,000 AGI, until it is ultimately reduced to $10,000 for those with an AGI over $600,000. For single taxpayers, the SALT cap is $20,000, with the phase-out starting at $250,000. The annual SALT cap will increase in 1% increments each year, based on the prior year’s limitation, through 2033, when it will be fixed at $42,885, with similar increases in the phase-out levels.

Pass Through Entity Taxes (“PTET”)

The Bill also restricts state PTET deductions for individual partners and S corporation shareholders that are either not engaged in a trade or business or are a “specified service trades or businesses” as defined in section 199A(d)(1)(A) (most professional services and consulting businesses) after 2025. State and local taxes paid by such entities will be treated as separately stated items by the partnership or S corporation and subject to the individual SALT cap of $40,000 (or lower).

Section 199A

The TCJA introduced a temporary 20% deduction for qualified business income (QBI, also known as Section 199A deduction), applicable to certain sole proprietorships, partnerships, S corporations, and some trusts and estates, lasting until the end of 2025. Beginning in 2026, the Bill plans to make this QBI deduction permanent and increase the deduction to 23%, along with making additional changes to the phase-in of previously established limitations. To qualify for the updated QBI deduction, pass-through businesses must prove they are “qualifying entities,” with 75% of their gross receipts coming from a qualified trade or business. Pass-through entities classified as specified service trades or businesses (SSTB) face restrictions on claiming the QBI deduction if their income exceeds certain thresholds ($483,900 for joint filers as of 2024). Initially set by the TCJA, this restriction is retained in a modified form under the Bill. SSTBs include businesses providing services in fields such as accounting, health care, law, consulting, financial services, investment management, athletics, and the performing arts, among other specialized areas.

Code section 899

Also known as “Enforcement of Remedies Against Unfair Foreign Taxes,” is designed as a countermeasure against specific foreign countries (termed “discriminatory foreign countries”) that have enacted “unfair foreign taxes” affecting U.S. persons or foreign entities owned by U.S. persons. This section aims to:

1. Increase tax rates on non-U.S. individuals, corporations, governments, and private foundations with sufficient nexus to a discriminatory foreign country.
2. Adjust the Base Erosion and Anti-Abuse Tax (BEAT) rules for corporations directly or indirectly owned by such persons.

Foreign investors from designated countries could face higher U.S. withholding taxes on returns from U.S. investments, reducing their after-tax income.  Sovereign Wealth Funds, often significant investors in PE funds, would lose their Section 892 exemption, subjecting them to U.S. tax on previously exempt income. PE funds may have to adjust their withholding practices to comply with the new rates, potentially increasing administrative burdens. The increased tax burden may make US funds less attractive to foreign investors from affected countries.

What’s Next for the One Big Beautiful Bill Act

In conclusion, these are only a select few sections of the One Big Beautiful Bill. Although the Bill has passed the House of Representatives, it still needs Senate approval and, as a result, could change substantially from its current form before being finalized and enacted into law.  Please get in touch with your CBIZ professional for updates and discussions on how this proposed bill affects your tax situation.

Citing references
https://waysandmeans.house.gov/wp-content/uploads/2025/05/The-One-Big-Beautiful-Bill-Section-by-Section.pdf
https://www.cbiz.com/insights/article/house-approves-the-one-big-beautiful-act-reconciliation-bill-now-moves-to-the-senate
https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2025/05/kpmg-report-international-one-big-beautiful-bill-may-15-2025.pdf
https://www.eversheds-sutherland.com/en/united-states/insights/house-rules-committees-revisions-to-one-big-beautiful-bill-include-amendment