Private Equity, Private Credit, and Venture Capital Professionals: 2025 Tax Reform Insights

With the S&P 500 and Nasdaq near record highs, indicating a robust public market, and private markets continuing to attract record inflows, 2025’s tax reforms are reshaping the landscape for private equity, private credit, and venture capital managers and investors. Here’s what you need to know to stay ahead in today’s dynamic environment.

Carried Interest Reform: What’s Changed?

• Extended Holding Period: The minimum holding period for long-term capital gains treatment on carried interest has been increased to five years (up from three). Gains realized before five years are taxed as ordinary income, with limited exceptions for certain real estate and venture investments.
  
• Broader Scope: The definition of “applicable partnership interests” has been expanded, closing prior loopholes and capturing a wider range of fund structures under the new rules. For instance, this could include interests in partnerships engaged in investment management, real estate, or other financial activities.
  
• Look-Through Rule: For tiered partnerships, the holding period is determined by the underlying asset’s holding period, not just the partnership interest. In simpler terms, if you invest in a fund that, in turn, invests in another fund, the five-year rule is enforced at the asset level, not just at the fund level.
  
• Reporting & Compliance: Enhanced disclosure requirements now mandate detailed reporting of carried interest allocations, holding periods, and asset-level transactions to the IRS, increasing transparency and compliance obligations for fund managers and investors.
  

Qualified Production Property (QPP): Full Expensing Incentives

• 100% Immediate Expensing: New legislation allows for full expensing of Qualified Production Property—including machinery, equipment, and advanced manufacturing systems—placed in service after December 31, 2024. This removes prior phase-out schedules and is coordinated with other investment credits..
  
• Expanded Definition: QPP now encompasses a broader range of assets, including AI-driven and automated production systems, reflecting the ongoing transformation of U.S. industry.
  
• Eligibility & Compliance: Property must be used predominantly in domestic production and meet IRS criteria. Enhanced reporting ensures compliance, and benefits are available for non-Real Estate Professionals.
  

QSBS: Major Enhancements for Investors

• Higher Exclusion Cap: The maximum gain eligible for exclusion from federal income tax is now the greater of $20 million or 20 times the basis, up from $10 million or 10 times the basis.
  
• Broader Eligibility: The asset cap for qualified small businesses rises from $50 million to $75 million, allowing more startups and growth companies to qualify.
  
• Rollover Flexibility: Investors can now defer gains by rolling proceeds into other QSBS within a longer reinvestment window, enhancing flexibility for serial entrepreneurs and venture investors.
  
• Reporting: New requirements for annual statements to the IRS and shareholders regarding QSBS status and eligibility.
  

QBI Deduction Reform: Implications for Fund Managers

• Deduction Made Permanent: The 20% Qualified Business Income (QBI) deduction for pass-through entities is now indefinite, with a potential increase to 23% starting in 2026.
  
• Higher Phase-In Thresholds: Wage and capital limitation thresholds are raised to $375,000 (joint) and $187,500 (single), indexed for inflation, allowing more business owners to benefit.
  
• Minimum Deduction: A new $400 minimum deduction for those with at least $1,000 in active QBI ensures even small business owners receive meaningful relief.
  
• Expanded Reporting: Enhanced reporting for pass-throughs, including ownership percentages and QBI calculations, improves compliance and transparency.
  

SALT Deduction: Expanded Relief

• Cap Increased: For tax years 2025–2029, the State and Local Tax (SALT) deduction cap rises from $10,000 to $40,000 for joint filers ($20,000 for married filing separately), with annual inflation adjustments. After 2029, the cap reverts to $10,000.
  
• Phaseout for High Earners: The expanded cap phases down for MAGI above $500,000 ($250,000 for married filing separately), but never below $10,000.
  

Key Takeaway:‍

These reforms underscore the importance of a proactive approach to fund structuring, exit planning, and compliance. By being prepared to navigate the new five-year carried interest rule, leverage expanded QSBS and QPP incentives, and optimize your tax position under the latest QBI and SALT changes, you can take control of your financial future.

We would like to discuss how these developments may impact your long-term strategy. Contact your Farther advisor today or reach out for a personalized consultation.