This Memorandum continues our analysis of the current U.S. federal tax reform process. Last week, the House of Representative passed the Senate’s version of the One Big, Beautiful Bill (the “Senate Tax Bill”), and President Trump signed it into law. The Senate Tax Bill was released on June 16, 2025, and underwent significant debate and negotiation before being engrossed on June 30, 2025.

For background, please see our prior coverage of this season of tax reform:

• summary of the House of Representative’s initial version of the One Big, Beautiful Bill
• our in-depth analysis of a newly proposed 3.5% excise tax on certain outbound remittances, and
• our in-depth analysis of the House’s proposed version of Section 899, which would have imposed a new retaliatory tax on certain foreign persons from countries with deemed unfair taxes (but that has now been dropped, as noted below).

This Memorandum analyzes the Senate Tax Bill and compares key provisions of the Senate Tax Bill to the earlier House of Representative’s One Big, Beautiful Bill (the “House Tax Bill”).

I. Provisions Affecting Investment Funds

 a. Litigation Finance Strategies

The Senate Tax Bill initially included Senator Tillis’s recently proposed “Tackling Predatory Litigation Funding Act.” This would have created a new tax on third-party litigation financers. This proposal has been excluded from the final version of the Senate Tax Bill.

b. Expanding QSBS

For qualified small business stock (“QSBS”) originally issued after the date of enactment, the Senate Tax Bill provides 50% gain exclusion for QSBS held for at least three years, 75% for at least four years, and 100% for at least five years. The Senate Tax Bill would increase (i) the per-issuer dollar cap from $10 million to $15 million and (ii) a corporation’s “aggregate gross asset” ceiling from $50 million to $75 million, in each case subject to inflation adjustments starting in 2027. The House Tax Bill contained no such QSBS provisions.

Taxpayers fully utilizing the inflation-adjusted per-issuer limitation in any tax year would no longer be eligible for additional inflation adjustments. The Senate proposal would also make conforming amendments to ensure married-filing-separately taxpayers could benefit from the inflation-adjusted per-issuer limitation.

c. QOFs

The final House Tax Bill did not change its approach to renewing and expanding the qualified opportunity fund (“QOF”) rules.

The Senate Tax Bill takes a different approach than the House Tax Bill. The Senate Tax Bill would make the QOF rules permanent on rolling 10-year cycles. Every ten years, the map of qualified opportunity zones would be adjusted to reflect updated population and economic data. An investment in a QOF would provide the taxpayer with deferral of capital gains until December 31, 2033, and each tenth year thereafter. For QOF investments made after 2033, taxpayers may benefit from longer deferrals and larger windows to achieve the maximum basis step-up.

During the deferral period, on each anniversary of the date of the investment in the QOF, the taxpayer’s basis is stepped up by 1% on each of the first three anniversaries, 2% on the fourth and fifth anniversaries and 3% on the sixth anniversary for an aggregate 10% basis step up. Investments made prior to December 31, 2027, may be eligible to benefit from the full 10% basis step-up.

Like the House Tax Bill, the Senate Tax Bill provides additional benefits for rural QOFs. The basis step up percentages are tripled for rural QOFs under the Senate Tax Bill. Both versions of the bill reduce the substantial improvement requirements for rural QOFs to 50% for pre-existing property in rural qualified opportunity zones.

d. Qualified Business Income Deduction (Section 199A)

Each of the House Tax Bill and Senate Tax Bill make the deduction for qualified business income under Section 199A permanent. The House Tax Bill increases the deduction from 20% to 23% and extends eligibility for this deduction to interest related dividends paid by a business development company (“BDC”) treated as a RIC. The Senate Tax Bill does not contain the deduction increase or the House Tax Bill provision that would have permitted certain interest related dividends from BDCs to qualify for this deduction.

e. Change to Taxable REIT Subsidiary Rules

The final House Tax Bill and the final Senate Tax Bill provided a small change for real estate investment trusts (“REITs”). Earlier versions did not contain this provision, which would reinstate a pre-2018 rule that limits a REIT’s investment in taxable REIT subsidiaries to 25% of the REIT’s total asset value. This is an increase from the 20% that came into effect in 2018.

f. Amortization of Costs of Purchasing Sports Franchises

The House Tax Bill would limit the deduction for amortization of goodwill and other intangibles attributable to the acquisition of sports franchises to 50%. The Senate Bill does not contain such a limitation.

II. Provisions Affecting Fund Sponsors

a. No Change to Carried Interest

Like the House Tax Bill, the Senate Tax Bill does not modify the current tax treatment of carried interest. Absent further changes to the Senate Tax Bill, recipients of carried interest from private funds would continue to eligible for long-term capital gains with respect to fund investments held longer than three years. Qualified dividends and gain from commodities futures and other Section 1256 contracts would continue to pass-through to general partners at their respective tax-advantaged rates.

b. Regulatory Authority Treatment of Payments from Partnerships to Partners for Property or Services

Both the final version of the House Tax Bill and the Senate Tax Bill propose a clarifying change to Code Section 707, which generally applies to transactions between partners and partnerships. The change would revise Code Section 707(a)(2) by replacing “Under regulations prescribed” with “Except as provided.” This change would make Code Section 707 more self-executing without the need for Treasury to prescribe additional regulations.

c. Section 199A (again)

Under current law, the qualified business income deduction under Code Section 199A is generally disallowed for specified services business, which include fund managers, lawyers, doctors and other professions. The Senate Tax Bill would increase the limitations, so more owners of pass-throughs that operate specified services business could benefit if they are below applicable thresholds. It is therefore possible that emerging or other smaller fund managers could potentially benefit from the qualified business income deduction on management company profits.

d. SALT Cap

The Senate Tax Bill proposes to increase limitation on state and local taxes (the “SALT Cap”) to $40,000, with annual 1% increases and scheduled to sunset back to $10,000 after 2029. Similar to the House Tax Bill, if modified AGI exceeds $500,000 (indexed for 1% increases annually), there will be a phaseout. Taxpayers with modified AGI above $600,000 would have a $10,000 SALT Cap.

The initial version of the Senate Tax Bill would have disallowed deductions for foreign real property taxes. This appears to have been excluded from a later version of the Senate Tax Bill, which is also in-line with the House Tax Bill.

e. PTET

As part of a deal among Republicans in both chambers, the Senate Tax Bill omits any limitation on the deductibility of state and local taxes paid at the level of a pass-through entity.

The initial version of the Senate Tax Bill had appeared more forgiving on SALT Cap workarounds than the House Tax Bill. The initial Senate Tax Bill would have permitted a limited deduction for elective state and local taxes paid by the pass-through entity. This proposal is no longer part of the Senate Tax Bill.

III. International Tax Changes

a. Section 899

Proposed Section 899 has been removed from the Senate Tax Bill after the G7 countries agreed that the OECD’s Pillar 2 global minimum tax rules will not apply to U.S. companies.

The initial Senate Tax Bill and the House Tax Bill each contained a new proposed Section 899, which would have imposed additional U.S. taxes on foreign persons resident in countries that impose discriminatory taxes on U.S. persons.

b. Increase on Taxes of U.S. Shareholders of CFCs

Under the final Senate Tax Bill, the deduction for GILTI would be lowered from 50% to 40% and the deduction for FDII would be lowered from 37.5% to 33.34%, resulting in effective rates of 12.6% and approximately 14%, respectively.

The Senate Tax Bill would also change how GILTI is calculated. The proposal would eliminate the deemed return on tangible income for purposes of calculating GILTI, which allows United States shareholders to exclude the first ten percent of their return from tangible assets from the calculation of GILTI. Under the Senate Tax Bill, a U.S. shareholder of a CFC would be taxed on all net tested CFC income without the ten percent exclusion. This could result in a substantial tax increase for U.S. shareholders of CFCs.

c. Technical Changes to CFC Provisions

The Senate Tax Bill would also make a few technical changes to the CFC provisions. First, the Senate Tax Bill would permanently extend the exception from Subpart F income for dividends and interest received by a CFC from a related CFC. Second, the Senate Tax Bill would partially restore the limitations on downward ownership attribution that were eliminated in 2017. The 2017 change resulted in many more foreign corporations becoming CFCs as a result of a U.S. entity being in their corporate structure. Finally, the Senate Tax Bill would eliminate the requirement that a U.S. person be a shareholder on the last day of the taxable year to have an inclusion under the Subpart F or GILTI rules and provides rules for determining a shareholder’s income inclusion in such circumstances.

 d. BEAT

The final version of the Senate Tax Bill would increase base erosion minimum tax would be increased to 10.5% under the Senate Tax Bill, dropping other proposed changes from earlier version of the Senate Tax Bill.

e. Remittances

Like the House Tax Bill, the Senate Tax Bill includes a new excise tax on outbound remittances by individual senders to foreign recipients though it has a lower 1% rate (compared to 3.5% under the House Tax Bill). It also provides an exception for funds withdrawn from an account held in or by certain financial institutions or funded with a U.S.-issued debit or credit card. For further information, refer to our article linked above.

IV. Provisions Affecting Specific Investors

a. Endowment Excise Tax

The Senate Tax Bill is more favorable than the House Tax Bill. Under the Senate proposal, the top marginal excise tax bracket is only 8% (compared to 21% under the House Tax Bill). Further, under the Senate Tax Bill, small schools (defined as those with fewer than 3,000 tuition-paying students) are not subject to the endowment excise tax under the Senate Tax Bill, the asset-to-student ratio permits a broader group of students to be taken into account than under the House Tax Bill and the exemption for qualified religious institutions has been removed.

b. Large Private Foundations

Unlike the House Tax Bill, the Senate Tax Bill does not contain an increase to the excise tax on investment income of large private foundations.

c. Permanent Non-Deductibility of Investment Expenses

The Senate Tax Bill aligns with the House Tax Bill making permanent non-deductibility of investment expenses, such as expenses that pass-through to taxable partners of private investment funds that are treated as “investors” rather than “traders” in securities.

V. Business Tax Changes

a. 100% Expensing of Business Property, Manufacturing Facilities and R&E Expenditures

The Senate Tax Bill generally aligns with the House Tax Bill for the 100% expensing treatment for new business equipment and for new buildings and facilities used in a manufacturing business. The Senate Tax Bill provides that manufacturing property must be placed in service no later than 2031 (2033 under the House Tax Bill).

In addition to the House Tax Bill’s proposed change to research and experimental (“R&E”) expenditures, small business taxpayers (with average annual gross receipts of $31 million or less) will generally be permitted to apply the immediate expensing rule retroactively to taxable years beginning after December 31, 2021. The Senate Tax Bill would allow taxpayers that incurred domestic R&E expenditures after December 31, 2021, and before January 1, 2025, to accelerate the remaining deductions for such expenditures over a one-year period or a two-year period.

b. Lending to Rural and Agricultural Borrowers

The Senate Tax Bill generally aligns with the House Tax Bill to provide a new tax break for qualified lenders making loans secured by rural or agricultural real estate. The lender would be entitled to exclude 25% of interest from its gross income. This provision is meant to incentivize rural and agricultural loans.

c. Section 461(l) Limitation on Excess Business Losses

Both the Senate Tax Bill and House Tax Bill generally align on making permanent the limitation on excess business losses. Under both bills, prior year excess business losses would be taken into account for purposes of determining a current year excess business loss.

d. Business Interest Deduction under Section 163(j)

Like the House Tax Bill, the Senate Tax Bill would retain calculating adjusted taxable income by excluding any deduction for depreciation, amortization or depletion. Under the Senate Tax Bill, adjusted taxable income would also be determined by excluding GILTI and subpart F income.

VI. Individual Income Tax Changes

  a. Individual Income, Gift and Estate Tax Rates

The Senate Tax Bill aligns with the House Tax Bill with respect to making permanent the current tax brackets, making permanent the elimination of miscellaneous itemized deductions, making permanent the current $750,000 threshold for qualified mortgage interest on personal residences, and imposing a new limitation on overall deductibility of itemized deductions for individuals in the highest tax bracket. For individuals that itemize, the Senate Tax bill would generally limit the deduction for charitable contributions to amounts that exceed 0.5% of the taxpayer’s contribution base. These changes would be effective beginning in 2026.

The Senate Tax Bill aligns with the House Tax Bill for gift and estate tax purposes, making the estate tax exemption permanent and set at $15,000,000 for 2026, indexed for inflation.

b. Charitable Giving

The Senate Tax Bill would create a new above the line deduction for charitable donations up to $2,000 for married-filing-joint taxpayers ($1,000 for all others). Additionally, the Senate Tax Bill would impose a new 0.5% floor on charitable donations for taxpayers who do elect to itemize deductions, effectively reducing a taxpayer’s contribution base by 0.5%. The Senate Tax Bill creates a new tax credit for contributions to certain scholarship granting organization, which would operate separate from the deduction for other charitable contributions. Finally, the Senate Tax Bill would extend the increased contribution limitation for cash gifts made to qualified charities. The Senate Tax Bill would make the forgoing changes permanent.

c. New Tax Breaks on Tips, Overtime, and Car Interest

Both the Senate Tax Bill and House Tax Bill provide new tax breaks for qualified tips, qualified overtime pay and car loan interest. The Senate Tax Bill would limit the deduction for qualified tips to $25,000. The Senate Tax Bill would provide a deduction for qualified overtime up to $25,000 for married-filing-joint taxpayers ($12,500 for other taxpayers).

For both qualified tips and qualified overtime, the modified AGI cutoff is determined differently in both bills. Instead of the House Tax Bill’s approach to pegging the modified AGI threshold to the concept of a highly compensated person for qualified plans of deferred compensation, the Senate Tax Bill sets it at $300,000 of modified AGI for married-filing-joint taxpayers ($150,000 for other taxpayers).

The Senate Tax Bill generally aligns with the House Tax Bill, allowing a deduction up to $10,000 on interest paid on loans to acquire passenger vehicles, which underwent final assembly in the United States, though the Senate Tax Bill appears to exclude used cars. The deduction would phase out for taxpayers that have modified AGI above $200,000 for married-filing-joint taxpayers and above $100,000 for other taxpayers.

VII. Inflation Recovery Act Tax Credits

Both the Senate Tax Bill and House Tax Bill would generally eliminate or restrict tax credits for various Green New Deal subsidies. Both bills have differences in terms of how and when restrictions or terminations come into effect. The final version of the Senate Tax Bill removed an earlier proposed excise tax on certain imported materials used in such projects.

Final Remarks

We expect to see further updates and amendments to the House Tax Bill as it moves through the Senate and will provide updates accordingly. Individual and corporate taxpayers alike are encouraged to consult with their tax advisors regarding the proposed legislation’s potential impact on their tax liabilities and business decisions.