The OBBBA: 8 Key Takeaways for Private Equity Investors, Family Offices, Fund Managers and Their Portfolio Companies

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The 2025 tax reform bill, P.L. 119-21, often referred to as the “One Big Beautiful Bill Act,” has sweeping implications for a range of private equity (PE) stakeholders, including funds, family offices, fund managers and portfolio companies.

The Act is comprehensive and affects almost all participants in U.S. commerce. This article provides a summary of private equity tax reform provisions most significant to the industry. For further details, please contact Cherry Bekaert’s National Tax Office.

1. Relaxed Business Interest Limitation (Internal Revenue Code Section 163(j))

Section 163(j) disallows business interest deductions to the extent they exceed 30% of adjusted taxable income (ATI), which was previously based on earnings before interest, taxes, depreciation and amortization (EBITDA). P.L. 119-21 provides that for taxable years beginning after December 31, 2024. ATI will be based on earnings before interest and taxes (EBIT). That is, the 30% limit will be calculated before reduction by depreciation and amortization, increasing the allowable interest deductions, especially for capital-intensive businesses with substantial depreciation and amortization expenses.

The tax reform bill also changes some computational details of the 30% calculation, which should generally be beneficial to borrower-taxpayers. Starting in 2026, there will be an ordering rule that requires Section 163(j) limitation calculation to be applied before any capitalization of interest. Also starting in 2026, certain foreign income will be excluded from the ATI calculation. This provision may negatively impact companies with certain types of foreign income.

2. Return of 100% Bonus Depreciation and Deduction of R&D Expenses

P.L. 119-21:

• Restores 100% bonus depreciation, allowing immediate deduction of the cost of purchasing most depreciable assets.
• Eliminates the requirement to capitalize domestic research and development (R&D) expenses, instead permitting immediate deduction. Foreign R&D costs still must be capitalized and amortized over 15 years.

When modeling future cash flows, qualified entities must consider the allocation of foreign and domestic R&D spending, along with any unamortized domestic R&D. Additionally, to estimate income tax expense accurately, you should consult a tax professional to determine if purchased property qualifies for bonus depreciation.

Overall, these changes should increase businesses’ incentives to invest in growth.

3. Liberalized QSBS Exclusion

Section 1202 permits 100% exclusion from taxable income of gains from dispositions of certain qualified small business stock (QSBS). P.L. 119-21 expands the scope of the exclusion only for stock acquired on or after July 4, 2025.

• A five-year holding period remains required for the full exclusion. However, a three-year holding period now qualifies for 50% gain exclusion and a four-year period qualifies for 75% (assuming all other requirements for exclusion, which generally have not been changed, are met).
• Each taxpayer’s maximum exclusion per issuer has been increased from the greater of $10M or 10x investment to the greater of $15M or 10x investment, with the $15M limitation now being indexed for inflation.
• For an issuer to issue stock that can qualify as QSBS, there is a limitation on the amount of the issuer’s gross assets test. P.L. 119-21 increases that limitation from $50M to $75M, indexed for inflation.

These changes should make small-cap and growth-stage companies more appealing to private equity investors.

4. Carried Interest Rules Remain Unchanged

While many observers were expecting the 2025 tax reform to alter the favorable tax treatment of “carried interests,” P.L. 119-21 did not end up doing so. It therefore remains possible for investment and private equity professionals to derive long-term capital gains, which are taxed at favorable rates, from equity received in return for services. (The three-year holding period requirement for those professionals to receive long-term capital gain treatment also has not changed.)

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5. Increased Gift & Estate Tax Exemptions

From 2026 onward, the exemption for gift, estate, and generation-skipping transfer taxes increases to $15 million per person and $30 million per married couple (indexed for inflation), providing private equity professionals the ability to make additional tax-free transfers of assets for family wealth planning purposes.

6. GILTI, FDII & Section 958: International Taxes

P.L. 119-21 makes modest changes to the international tax regime, including these provisions starting in 2026:

• The effective deduction used in calculating foreign-derived intangible income (FDII, renamed foreign derived deduction eligible income) will be set at approximately 14%, tightening its calculation.
• The global intangible low-taxed income (GILTI) effective U.S. tax rate will be set at 12.6%, paired with a 90% foreign tax credit limitation, which makes GILTI tax less burdensome when foreign tax rates exceed approximately 14%.

However, several broader changes, such as computational rules for controlled foreign corporations, ownership attribution rules, etc., were not enacted.

7. Clarity for Disguised Sales of Partnership Interests

P.L. 119-21 clarifies that Section 707(a)(2) is self-executing, meaning it applies even if implementing regulations have not been promulgated. That defeats taxpayer arguments that Section 707(a)(2) is inapplicable in certain cases due to a lack of specifically applicable regulations. The clarification provides predictability for structuring fee waivers, carried interests and other partnership arrangements.

8. Excess Business Loss Limitation Made Permanent

Since the Tax Cuts and Jobs Act (TCJA), non-corporate taxpayers’ ability to deduct business losses has been limited to $500K per year ($250K for single filers or married filers filing separately), indexed for inflation. P.L. 119-21 makes that limitation permanent, remaining indexed for inflation.

For owners of pass-through entities such as partnerships, the rule is applied at the individual partner or shareholder level. Thus, if a business loss is incurred in such a pass-through structure and no other limitation on the deduction of losses applies, owners of the business may still be prevented from currently deducting the loss (although unused losses are carried over for later use).

Summary of Key Takeaways for Private Equity Stakeholders

*Definition of terms: 

• PE Funds / Family Offices: Investment vehicles, including family offices
• Fund Managers: Entity/individual managing the Fund
• Portfolio Companies: Private Equity-backed companies

Download a summary of key takeaways for P.L. 119-21 and the implications for private equity stakeholders. 

Let Us Guide You Forward

The 2025 tax reform presents both challenges and opportunities for those operating in the private equity industry and undertaking M&A. PE stakeholders must stay ahead of the curve to remain successful and compliant. Our industry-focused tax advisers can help you and your organization interpret the new rules and align strategies for long-term success. Connect with your Cherry Bekaert advisor today. 

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