House passes sweeping tax bill: Top points for the investment funds industry

On May 22, 2025, the House of Representatives passed a tax bill with some limited amendments (House Tax Bill). The House Tax Bill will now head to the Senate, where additional amendments could be made.

Below, we outline five key takeaways and the bill’s potential impact on fund sponsors, investors, and the broader asset management community.

1. Section 899 would limit Section 892 and treaty benefits for certain foreign governments

The House Tax Bill proposes 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), undertaxed profits rules (UTPR), diverted profits taxes, and other foreign taxes that the Secretary determines are disproportionately borne by US persons. Specifically, Section 899 would deny Section 892 benefits to governments of discriminatory foreign countries and increase the rate of withholding (by up to 20 percentage points) on other foreign persons who are tax resident in, or controlled by, foreign persons tax resident in such countries. The Joint Committee on Taxation (JCT) report clarifies that the retaliatory tax could modify certain preferential rates under income tax treaties.

2. Excise tax on certain university endowments’ investment income would be modified

The House Tax Bill modifies the current excise tax under Section 4968 of the Internal Revenue Code, which is imposed on certain large private university endowments. It introduces graduated rates ranging from 1.4 percent of net investment income (for institutions with a student-adjusted endowment in excess of $500,000 and not in excess of $750,000) and up to 21 percent of net investment income (for institutions with a student-adjusted endowment in excess of $2 million). The bill proposes to tax the investment income of the largest private university endowments at the same rates imposed on unrelated business taxable income (UBTI).

3. The portfolio interest exemption would be preserved

The House Tax Bill does not address the portfolio interest exemption. The Committee on the Budget released a report that suggests Section 899 is not intended to apply to the portfolio interest exemption.

4. Carried interest reform has not yet been addressed

Despite ongoing discussions regarding carried interest reform, the House Tax Bill remains silent on this issue. This may continue to be a point of discussion as the bill moves to the Senate.

5. The taxable REIT subsidiary limit would increase to 25 percent, and the Section 199A deduction would increase to 23 percent

The House Tax Bill proposes to allow real estate investment trusts (REITs) to hold up to 25 percent of their assets through taxable subsidiary corporations – up from the current 20 percent. This is not a new proposal, as the law has fluctuated between 20 percent and 25 percent at various periods.

Under current economic conditions, increasing the limit to 25 percent could help ease compliance burdens for REITs and offer greater flexibility in using the taxable REIT subsidiary (TRS) regime. For example, this change would likely benefit international projects, where compliance can be challenging due to the interaction between local laws and US tax laws. It could also benefit REITs pursuing data center projects.

Additionally, the House Tax Bill proposes to make permanent and increase the Section 199A deduction for ordinary REIT dividends to 23 percent. The effective tax rate on REIT ordinary dividends for individuals in the 37-percent bracket would decrease from 29.6 percent to 28.49 percent.

We will continue to monitor developments closely and provide timely updates as new information becomes available.

For more information, please contact a member of the DLA Piper Investment Funds team or the DLA Piper Tax team.