On May 12, 2025, Republicans in the House of Representatives introduced the One, Big, Beautiful Bill of 2025 (the “House Bill”). The House Bill comes out of the House Ways and Means Committee after weeks of internal drafting and revenue reconciliation exercises. The House of Representatives may vote on the House Bill as early as the week after Memorial Day.

This Memorandum highlights aspects of the House Bill that are of particular relevance to our Investment Management, Trusts & Estates and Family Office clients.

As important as what is included in the House Bill, the omissions are equally noteworthy:

• The House Bill omits any changes to the tax treatment of carried interest, despite indications of bipartisan support earlier this year.
• The House Bill omits any changes to the corporate income tax rate, which was set permanently by the Tax Cuts and Jobs Act (the “TCJA”). President Trump floated a reduced corporate tax rate for domestic manufacturers, which are receiving other tax benefits under the House Bill.
• The House Bill omits does not include residence-based tax rules for U.S. citizens living abroad.
• Despite news reports about restoring the top marginal 39.6% tax bracket on high income earning taxpayers, the House Bill omits any such tax increase.
• There are no changes in the House Bill to the taxation of cruise companies, despite Commerce Secretary Lutnick’s comments earlier this year.

Individual Income Tax Reforms:

• The individual income tax brackets modified by the TCJA would be made permanent with the top bracket of 37% remaining unchanged.
• The TCJA’s standard deduction amount would be made permanent and increased by $2,000 (married filing jointly), $1,500 (head of household) or $1,000 (single) for the 2025-2028 tax years.
• Personal exemptions and miscellaneous itemized deductions, which were suspended through the end of 2025 by the TCJA, would be terminated permanently. This includes investment expenses that were once deductible under Code Section 212.
• Itemized deductions would also be subject to a new overall limitation for individual taxpayers in the highest income tax bracket.
• The House Bill would create an above-the-line deduction for “qualified tips” (i.e., effectively exempting such tips from federal income tax) for the 2025-2028 tax years. A “qualified tip” is generally any cash tip received by an individual, whether an employee or independent contractor, in an occupation that traditionally and customarily received tips. Certain highly compensated employees or workers would not be eligible for this treatment.
• The use of health savings accounts (HSA) would be expanded in certain cases, including: (i) individuals eligible to receive Medicare Part A, but who continue to participate in a high-deductible health plan (HDHP); (ii) direct primary care service arrangements, conditioned upon also having an HDHP and limited in amount; (iii) physical fitness membership and instructional activity, up to limited amounts; (iv) an individual whose spouse participates in a flexible spending arrangement (FSA); and (vi) medical expenses incurred within 60 days of establishing an HSA.
• The House Bill would create an above-the-line deduction of up to $10,000 of qualified car loan interest. Among the limitation, the final assembly of the vehicle would need to occur in the United States. This tax break would expire after 2028.

State and Local Taxes:

• The limitation on the deductibility of state and local income taxes (the “SALT Cap”) would be raised from $10,000 to $30,000 ($15,000 for married filing separate taxpayers). For single or married filing jointly taxpayers with “modified adjusted gross income” (“MAGI”) exceeding $200,000 or $400,000, respectively, the SALT Cap phases down by 20% of the excess but not below $5,000 or $10,000, respectively. Thus, once MAGI exceeds $500,000 for married filing jointly taxpayers, the SALT Cap would be reduced to the existing $10,000 cap.

Changes Affecting Pass-Throughs:

• Pass-Through Entity Taxes
  • State and local and pass-thru entity taxes (“PTET”) imposed on partnerships and S corporations would be subject to the SALT Cap at the individual partner level. This would effectively eliminate the advantages of the PTET for partnerships and S corporations.
• Unincorporated Business Tax
  • Under current law, the New York City Unincorporated Business Tax (“UBT”) and similar partnership level taxes (e.g., Texas Margin Tax) are deductible against partnership income for federal income tax purposes. The House Bill would also subject the UBT and similar partnership level taxes to the SALT Cap at the individual partner level for most service businesses, including investment managers.
• The consequence of these changes regarding the PTET and UBT would be to substantially increase the effective tax rates for service businesses, particularly those located in New York City.
• Qualified Business Income
  • The House Bill would increase the deduction under Code Section 199A for qualified business income earned through a pass-through entity from 20% to 23% and make this a permanent provision.
  • The House Bill would also expand the application of Code Section 199A to interest dividends paid by qualified business development companies (“BDCs”).¹
  • In addition, the House Bill would modify the limitations based on a taxpayer’s taxable income. In particular: 
    • For taxpayers whose taxable income does not exceed the inflation-adjusted threshold amount (for 2025, $197,300 for individuals and $394,600 for married filing jointly), a specified service trade or business (“SSTB”) can be treated as a qualified trade or business but the W-2 and basis limitations would no longer apply. 
    • For taxpayers whose taxable income exceeds the threshold amount, a SSTB may now be treated as a qualified trade or business, but the deduction for qualified trade or business amounts will be reduced by a “limitation phase-in amount,” which is 75% of the excess, if any, of (i) the taxpayer’s taxable income, over (ii) the threshold amount. While the modification expands the availability of the 199A deduction to taxpayers in SSTBs whose taxable income exceeds the threshold amount (including, e.g., investment managers, lawyers and accountants), the benefit will phase out over certain income levels.    
• The House Bill would make the limitation on “excess business losses”² for non-corporate taxpayers permanent. Any disallowed loss created for taxable years beginning after December 31, 2024, would be included in the subsequent year’s testing of the excess business loss limitation. This change will result in such losses potentially being deferred for a substantial period of time. While the application of this provision to investment funds is unclear, it is possible that losses incurred by investors in so-called “trader funds” could be subject to this provision.

Tax Reforms Affecting Businesses and Business Owners

• Current law requires taxpayers to amortize the cost of nonresidential real property over 39 years. The House Bill would allow taxpayers to elect to deduct 100 percent of the adjusted basis of nonresidential real property that is used as an integral part of qualified production activity,³  that is located in the United States or a U.S. territory, the original use of which begins with the taxpayer, the construction of which begins after January 19, 2025 and before January 1, 2029, and that is placed in service by January 1, 2034 (“qualified production property”).
• Immediate 100% expensing of qualified property (which generally includes most equipment and machinery) provided by the TCJA would be extended for qualified property obtained and placed in service on or after January 20, 2025, and before January 1, 2030.
• Domestic research and experimental expenditures paid or incurred in tax years beginning after December 31, 2024, and before January 1, 2030, would be deductible immediately under the House Bill. Any amount paid or incurred in connection with the development of any software would be treated as research and experimental expenditures.
• Under Code Section 163(j), business interest is generally deductible to the extent of business interest income plus 30% of “adjusted taxable income” (which corresponds with the concept of EBITDA, instead of EBIT under current law) for taxable years beginning after December 31, 2024, and before January 1, 2030.
• Qualified lenders⁴  would be allowed to exclude 25% of interest received on any qualified real estate loan, which are mortgages secured by rural, agricultural or aquacultural real estate, not made to certain foreign-owned borrowers and made before January 1, 2029.
• Code Section 162(m), which applies to publicly held corporations and certain publicly held partnerships, limits the compensation deduction to $1,000,000 for amounts paid to the CEO, CFO and next three highest paid officers and, beginning in 2027, the next five highest paid employees. The House Bill would determine the group of next five employees on an aggregate basis across the company’s controlled group (not just the publicly traded company itself) and allocate the $1 million deduction among the controlled group members pro-rata based on compensation by each member to the covered employee.

Qualified Opportunity Zones:

• The qualified opportunity zone rules would be renewed as of 2027 under the House Bill. These rules are revamped to ensure greater investment into low-income communities and rural areas and will also impose broader information reporting requirements.
• Capital gains that are rolled into qualifying opportunity funds after December 31, 2026, would be deferred until December 31, 2033. If a five-year holding period is satisfied by December 31, 2033, there will be a basis step up, causing a reduction of the capital gains by 10% (30% in the case of investments into rural QOFs). There would be no additional 5% basis step up for 7-year holding periods as in the original QOF rules.
• Up to $10,000 of ordinary income per year may be invested into qualified opportunity funds and deferred until December 31, 2033. There is no basis step for ordinary income deferrals.
• For buildings in an all rural zone (including data centers) the substantial improvement requirement would fall from 100% to 50% of original basis.
• The 10-year benefit of no capital gains on an exit would remain in place.

Provisions Affecting Tax-Exempt Organizations:

• University Endowment Tax
  • The university excise endowment tax would be expanded and increased. Under the TCJA, private colleges and universities that have endowments that averaged at least $500,000 per student are subject to a 1.4% excise tax on net investment income.
  • The House Bill would create a tiered rate structure based on an assets-to-student ratio (the “student adjusted endowment”). Those having a student-adjusted endowment of greater than $500,000 (but less than $750,000) would continue to be subject to 1.4% excise tax on net investment Schools with student-adjusted endowments above $750,000, $1,250,000 and $2,000,000 will be subject to the excise tax at rates of 7%, 14% and 21%, respectively.
  • Given this change, university endowments subject to this tax may wish to review their investment choices to take into account tax efficiency.
  • The House Bill exempts schools that qualify as “qualified religious institutions” from this tax and excludes from the student adjustment endowment computation any students that are not U.S. citizens or nationals, permanent residents or able to provide sufficient evidence from the Immigration and Naturalization Service that they are in the U.S. for other than a temporary purpose with the intention of becoming a U.S. citizen or resident (which could exclude, for example, those on student visas or having undocumented status).
• Instead of only applying to its top five highest paid employees (including anyone in the top five in prior years), under the House Bill, the excise tax on a tax-exempt organization would apply to all its employees in respect of (i) compensation over $1,000,000 paid to any employee and (ii) any “excess parachute payments” (i.e., generally, severance amounts in excess of 3x the employee’s five-year average compensation) provided to a “highly compensated employee” (which currently could include employees with compensation above $160,000). 
• Amounts paid by tax-exempt organization as non-deductible qualified transportation fringe benefits and income from the sale or licensing by a tax-exempt organization of its name or logo would be added to UBTI.
• The Secretary of the Treasury would have the authority to suspend the tax-exempt status of tax-exempt organizations that are determined to be “terrorist supporting organizations,” i.e., determined to have provided “material support or resources” to designated terrorist organizations in the three years prior to the determination. The House Bill provides a notice period and an opportunity to cure, as well as review by the Independent Office of Appeals within the IRS. Similar to university endowments, private foundations may wish to review their investment choices for tax efficiency.

Gift, Estate and Generation Skipping Tax:

• The House Bill would make the estate, gift and GST tax exemption permanently at $15,000,000 per individual beginning in in 2026 and would be indexed for inflation.
• Large private foundations would be subject to higher excise taxes on net investment income under the House Bill. Under the House Bill, the current rate of 1.39% would remain applicable to private foundations reporting less than $50,000,000 in total assets but would be increased to 2.78%, 5% and 10% for private foundations with total assets of at least $50,000,000, $250,000,000 and $500,000,000, respectively.

International Tax Changes:

• A domestic corporation is currently entitled to (i) a 50% deduction on the sum of its global intangible low-taxed income (“GILTI”) and the related dividend inclusion under Code Section 78 and (ii) a 37.5% deduction on its foreign derived intangible income (“FDII”). The deductions for (i) and (ii) were scheduled to be reduced to 37.5% and 21.875%, respectively, for tax years beginning after December 31, 2025, but the House Bill would eliminate this step-down, thereby maintaining the effective tax rate at 10.5% on GILTI and 125% on FDII if this provision of the House Bill is enacted.
• The base erosion minimum tax will remain at 10% under the House Bill, instead of increasing to 12.5% for tax years beginning after December 31, 2025, as currently scheduled.
• Foreign taxpayers resident in a jurisdiction imposing a discriminatory or extraterritorial tax on U.S. persons (or certain foreign entities owned by U.S. persons) would be subject to increased U.S. tax rates. Notably, the provision would suspend the application of the Code Section 892 exemption available to foreign government entities located in these jurisdictions.

Changes Affecting Tax Credits Under the Inflation Reduction Act:

• Clean energy-related tax credits would be pulled back, and existing law set to expire in 2032 is accelerated to expire in 2025. This will impact taxpayers engaging in clean energy activities and planning to claim credits in upcoming taxable years.
• The following energy-related tax credits would expire at the end of 2025:
  • Previously-owned clean vehicles
  • Clean vehicles
  • Qualified commercial clean vehicles
  • Alternative fuel vehicle refueling property
  • Energy efficient home improvement
  • Residential clean energy
  • New energy efficient home
  • Transferability of clean fuel production (expires after 12/31/2027)
  • Clean hydrogen production

• The following energy-related tax credits would be phased out in increments of 20% annually and eliminated by 2031:
  • Clean electricity production
  • Clean electricity investment
  • Carbon oxide sequestration
  • Zero emission nuclear power production
  • Advanced manufacturing production
  • Certain energy property
• Many of the energy-related credits that are phasing out would have added restrictions for certain foreign entities, specified foreign entities, foreign-influenced entities, and certain FDAP payors. Foreign taxpayers planning to claim these credits are encouraged to consult their tax advisors about possible consequences.
• A publicly traded partnership is in general treated as a corporation for federal income tax purposes unless at least 90% of such publicly traded partnership’s gross income consists of “qualifying income.” The definition of “qualifying income” would be expanded to include (1) transportation or storage of certain alcohol, bio-diesel or sustainable aviation fuel, liquified hydrogen or compressed hydrogen and (2) generation of electricity or capture of carbon dioxide at a direct air capture or carbon capture facility, which may help more entities to meet the qualifying income threshold.

Final Remarks

Seward & Kissel LLP actively monitors tax changes and their impact on the investment management industry. For additional information, please contact a member of Seward & Kissel’s Tax Group.