On May 9, 2025, House Committee on Ways and Means Chairman Jason Smith (R-MO) released a proposed 28-page tax bill, which is scheduled for markup by the House Committee on Ways and Means on May 13, 2025. Below, we highlight the top three takeaways and their potential impact on fund sponsors, investors, and the broader asset management community.
1. Permanent extension of 2017 tax reform – with some exceptions
The tax bill generally proposes a permanent extension of the 2017 tax reform provisions, consistent with prior expectations from both the asset management community and the Trump Administration. While this may provide a measure of certainty for long-term tax planning, certain exceptions remain, and the details will be important as the legislative process unfolds.
2. Increase in Section 199A deduction
The tax bill proposes increasing the Section 199A deduction under the Internal Revenue Code for qualified business income (including partnership income and REIT ordinary dividend income) from 20 percent to 22 percent. This change would lower the effective tax rate for high net-worth US individuals currently taxed at a 37-percent rate, reducing it from 29.6 percent to 28.86 percent. This enhancement may be a favorable development for pass-through entities, including many real estate investment fund vehicles and REITs, potentially increasing after-tax returns and making these structures even more attractive for US individual investors.
3. Unaddressed issues in the tax bill
The tax bill does not discuss earlier proposals from the Trump Administration to tax carried interest as ordinary income. As noted in our prior client alert, both the Trump Administration and Democratic lawmakers had previously signaled an intent to eliminate favorable capital gains treatment for carried interest.
In addition, the tax bill does not address the enactment of new Section 899 under the Internal Revenue Code, which would impose a retaliatory tax on certain countries that have adopted digital services taxes (DSTs). This omission is significant in light of recent legislative proposals, including H. R. 591, the “Defending American Jobs and Investment Act,” which sought to address this issue.
Lastly, the tax bill does not include any proposal to repeal the Section 892 exemption under the Internal Revenue Code, which provides favorable tax treatment for certain foreign government investors, including sovereign wealth funds. This is a departure from prior proposals under the Biden Administration that would have limited or eliminated Section 892 benefits for some taxpayers under the bill entitled “Ending Tax Breaks for Massive Sovereign Wealth Funds Act.” Notably, the fact that these proposals have not been included in the tax bill does not mean that they have been rejected.
We caution that we are at an early stage of tax reform. The tax bill is only 28 pages, and changes or additions are likely. The fact that a provision was not included does not mean that it has definitely been rejected. In addition, the Senate tax proposals could be very different from what will be considered in the House of Representatives. We will continue to monitor developments closely and provide timely updates as new information becomes available.
[View source.]
