Tax Bill Summary

On July 4, 2025, President Trump signed into law a budget reconciliation bill[1] that includes hundreds of changes to the tax code (the "Tax Bill"), spending cuts, funding measures, and increases the statutory federal debt limit. The Tax Bill does not substantially change how funds or their shareholders are taxed, however, it includes some provisions relevant to funds, shareholders, and asset managers, described briefly below.

Several relevant provisions were dropped from the bill. ICI has released three other memos on the Tax Bill, (1) describing the provisions related to tax-deferred savings accounts (Trump accounts, ABLE accounts, and 529 plan accounts),[2] (2) summarizing ICI's advocacy efforts and outcomes from the Tax Bill,[3] and (3) describing a retaliatory tax (section 899) proposal that was later dropped from the Tax Bill (attached).[4]

Tax Changes Relevant to Funds and Separately Managed Accounts

The Tax Bill doesn't change the taxation of regulated investment companies (RICs) or other regulated investment funds, however, some provisions may be relevant to funds.

• The 20% deduction for "qualified business income," (199A) including REIT dividends and RIC dividends attributable to REIT dividends, was permanently extended. This ensures that REITs and funds investing in REITs will continue to qualify for this tax incentive. A prior version of the Tax Bill had extended this benefit to certain dividends from business development companies, which the ICI supported, however, that provision was removed from the final bill.[5]
• Changes to the allocation of income from controlled foreign corporations (CFCs) to shareholders, requiring allocation of CFC income to all US shareholders of the CFC who held the CFC stock on any day of the CFC's tax year. Prior law allocated CFC income to shareholders on the last day of the CFC's tax year. This rule may be relevant for funds that have foreign-domiciled corporate blockers (such as Cayman Island subsidiaries) if multiple funds own the blocker, or different funds own the blocker at different times of the year.
• The election permitting a CFC to have a tax year-end one month prior to owner's year-end is repealed. This election is common for funds that have foreign-domiciled blocker corporations, giving funds more time to calculate their subpart F income from these blockers.
• Extension and expansion of the exemption for gains from Qualified Small Business Strock (1202 gains). The bill modifies the current tax exemption for 1202 gains, exempting 50% of gain from qualifying small business stock held for 3 years, 75% for stock held 4 years, and 100% for stock held at least 5 years (capped at $15 million per issuer). RICs are permitted to pass through this tax benefit from 1202 gains to their shareholders, however, they rarely do.

A few provisions are relevant for separately managed accounts (SMAs).

• Miscellaneous itemized deductions are repealed, including the deduction for investment expenses, which generally prevents SMA investors from deducting their account expenses.
• A significant increase in the university endowment excise tax, from 1.4%, up to 8%, may generate more interest from large universities in tax-efficient investing strategies, such as SMAs managed for tax efficiency.  

Tax Changes Relevant to Shareholders

The Tax Bill includes many tax changes relevant to individuals. It permanently extends current tax rates and deductions, as well as limitations on deduction, by preventing most of the 2017 tax cuts[6] from expiring after 2025. In aggregate, these changes slightly reduce taxes for most taxpayers, with more significant cuts for higher-income taxpayers.

Tax Cuts for Individuals

The Tax Bill includes many permanent extensions of the 2017 tax cuts.

• It permanently extends the reduced tax rates and brackets, including the reduction of the top tax rate for ordinary income from 39.6% to 37%.[7] The Tax Bill does not change the tax rates on long-term capital gains and qualified dividend income, which remain at 0%, 15% and 20%.
• The increased standard deduction is permanently extended ($23,625 for joint filers, $15,750, adjusted for inflation), significantly reducing the number of taxpayers who itemize deductions.
• The increased exemption from, and higher threshold for the alternative minimum tax (AMT) is permanently extended, significantly reducing the number of taxpayers subject to the AMT.
• The 20% deduction for "qualified business income," (199A) including REIT dividends and RIC dividends attributable to REIT dividends, was permanently extended (see above).
• The increased estate tax exemption amount is made permanent.
• The child tax credit is expanded.
• A limited "above-the-line" charitable deduction for non-itemizers ($1,000 for single filers, $2,000 for joint filers) is restored and made permanent.

The Tax Bill includes several of President Trump's tax cutting priorities from his campaign, as temporary tax cuts from 2025-2028.

• A tax deduction for tip income, capped at $25,000 and phased out beginning at $300,000 for joint filers, or $150,000 for individual filers.
• A tax deduction for overtime pay, capped at $12,500 ($25,000 for joint filers) and phased out beginning at $300,000 for joint filers, or $150,000 for individual filers.
• A tax deduction for car loan interest expense, capped at $10,000 and phased out beginning at $200,000 for joint filers, or $100,000 for individual filers.
• A new investment savings account, called Trump Accounts (described in a separate ICI memo).

Tax Increases for Individuals

The Tax Bill also limits or removes many tax deductions.

• Many limitations on itemized deductions are now permanent, which combined with the higher standard deduction and scaled-back AMT, will reduce the number of taxpayers who itemize deductions and/or pay the AMT:
  • The cap on the state and local tax deduction was made permanent, with higher deductions for 2025-2029, approximately $40,000 (phased down to $10,000 for taxpayers making $500,000-$600,000). Beginning in 2030, the cap is scheduled to be $10,000.
  • Miscellaneous itemized deductions are repealed, including the deduction for investment expenses.
  • Itemized deductions are phased out for taxpayers in the top (37%) tax bracket, by 2/37ths (about 5.4%) of either the amount of itemized deductions, or taxable income in that bracket, whichever is less.
  • A new .5% floor on itemized charitable deductions effectively disallows a deduction for .5% of itemized charitable deductions.
  • Limitations on deductions for casualty losses and home mortgage interest.
• The personal exemptions are repealed. 

Tax Changes Relevant to Asset Managers

The Tax Bill includes several changes that may be relevant to asset managers.  

Domestic Tax Provisions

The Tax Bill restores several expired business tax incentives, but also permanently extends certain limitations on business deductions, and adds a new limitation for charitable contributions.

• Full expensing of depreciable business property is restored and made permanent. The "bonus depreciation" rule provides a full deduction for certain business property that would otherwise have to be capitalized and depreciated (deducted) over time.
• The full deduction for research and experimentation expenses was restored, in modified form, for certain "domestic" research expenses.
• Certain limits on the business interest expense deduction were scaled back, generally increasing the deductible amount of interest expenses.
• The deferral of deductions for excess business losses was permanently extended, with some modifications.
• Charitable contribution deductions for corporations are limited by both a 1% haircut and a 10% cap, based on the corporation's taxable income (before claiming this deduction). Essentially, the deduction is disallowed by an amount equal to 1% of income and then capped by an amount that is 9% of the corporation's taxable income.   

International Tax Provisions

The Tax Bill includes several changes that affect asset managers with international operations.

• Changes to the Global Intangible Low Taxed Income (GILTI) rules, including foreign tax credits attributable to GILTI, and the Foreign Derived Intangible Income (FDII) deduction.
• Certain changes to the Base Erosion Anti-abuse Tax (BEAT), including a slight increase in the tax rate from 10% to 10.5%. Notably, the bill does not include a significant expansion of the BEAT that was included in House version of the bill (the so-called "super-BEAT").
• Permanent look-through for related controlled foreign corporations (CFCs), for purposes of the Subpart F tax rules.  

What's Not in Tax Bill

The Tax Bill does not include several provisions that would have been relevant to funds and investors.

• Section 899, an additional surtax on US source income was initially included in the Tax Bill but was later removed. Section 899 would have substantially increased the tax rate on US dividends (and certain other income) paid to residents of countries with taxes deemed to be unfair to US businesses. The tax would have applied to most foreign-domiciled funds investing in US equities, and to many foreign shareholders of US funds.
• Expanding the Section 199A deduction to certain business development companies, which was included in the House's version of the Tax Bill, was not included in the final bill.    
• A new tax on remittances in the House's version of the Tax Bill could have applied broadly to anyone other than a US citizen and could have required withholding by US financial institutions. The final Tax Bill includes the remittance tax, however, it significantly narrowed the scope to cash and cash-like transfers and exempted most transfers from US financial accounts.  
• Cuts to retirement savings incentives weren't included in any version of the Tax Bill.

We'll continue to analyze the Tax Bill and assess potential implications for our members and their shareholders. Please contact Mike Horn (michael.horn@ici.org) or Katie Sunderland (katie.sunderland@ici.org) with questions or comments about the Tax Bill.

Mike Horn
Deputy General Counsel - Tax

Notes

[1] The engrossed Senate amendment to H.R. 1, "An Act to Provide reconciliation pursuant to title II of H. Con. Res. 14," formerly titled "The One Big Beautiful Bill Act." The Act's name, "One Big Beautiful Bill," was stricken as the official title due to a Byrd Rule challenge. For a summary of the version passed by the House of Representatives on May 22, 2025, see ICI Memorandum No. 36083, dated May 29, 2025, available at https://www.ici.org/memo36083.

[2] https://www.ici.org/memo36105. 

[3] Circulated via email to the ICI Government Affairs Advisory Committee, and ICI Tax Committee.

[4] See also, https://www.ici.org/memo36098, https://www.ici.org/news-release/25-big-beautiful-bill,  https://www.ici.org/news-release/25-section899-removal.

[5] The House bill would have increased the 199A deduction to 23% and expanded it to include "qualified BDC interest dividends," which were generally defined to include dividends paid by business development companies (BDCs) attributable to certain interest income received by the BDC. This provision was presumably intended to extend the 199A deduction to private credit BDCs. It's unclear why only BDCs would qualify and not other private credit funds. The provision was not included in the Senate bill or the final bill.    

[6]  Commonly known as the "Tax Cuts and Jobs Act" or TCJA.

[7] The tax brackets were scheduled to revert to pre-2018 law: 10%, 15%, 25%, 28%, 33%, 25% and 39.6%. The Tax Bill preserves the current brackets and rates, 10%, 12%, 22%, 24%, 32%, 35%, and 37%.