The tax landscape for private lenders has undergone a significant transformation. With the passage of the One Big Beautiful Bill Act (OBBA), key provisions of the Tax Cuts and Jobs Act (TCJA) have been made permanent, fundamentally changing how private lending businesses approach tax planning.
The TCJA: Why It Matters for Private Lenders
The Tax Cuts and Jobs Act of 2017 created two provisions particularly important for private lending:
1. Reduced corporate tax rates – Creating incentives for corporate structures 2. Section 199A qualified business income deduction – A 20% deduction for pass-through entities
These provisions made Mortgage REITs significantly more attractive and benefited the vast majority of private lending operating companies structured as pass-through businesses.
What Was at Stake
Several TCJA provisions were originally set to expire at the end of 2025, including:
- Qualified Business Income (QBI) Deduction – Would have been eliminated entirely
- Estate Tax Exemption – Would have been reduced significantly
- Individual tax rate reductions
The potential expiration of these provisions created uncertainty for private lenders planning their business structures and investment strategies.
The One Big Beautiful Bill Act: What Passed
After months of legislative maneuvering, Congress passed the OBBA through the budget reconciliation process. Key provisions include:
Permanent TCJA Extension
- All 2017 TCJA tax rates and brackets made permanent
- Section 199A QBI deduction made permanent (with potential increase to 23%)
- Estate tax exemption levels preserved
New Tax Provisions
- Tips exempted from federal income tax
- Overtime pay exempted from federal income tax
- Increased Child Tax Credit (up to $2,200)
- SALT deduction cap increased
Offsets
The bill includes approximately $1.3-1.5 trillion in spending cuts to offset tax reductions, including reductions to Medicaid, SNAP, and green-energy incentive programs.
Impact Analysis
For Private Lenders
The permanent QBI deduction is the most significant development. For pass-through lending entities—LLCs, LPs, and S corporations—the continuation and potential enhancement of this deduction substantially improves after-tax returns.
Budget Impact
Nonpartisan analysis from the Congressional Budget Office and tax policy groups estimates:
- $3.7-4.5 trillion in tax cuts over 10 years
- Net deficit increase of approximately $3.3-4 trillion
Distribution of Benefits
According to the Urban-Brookings Tax Policy Center, approximately 80% of tax benefits flow to the top 1% of earners, with more modest reductions for lower and middle-income households.
Legislative Timeline
The bill’s path through Congress was narrow:
What This Means for Your Business
Action Items
1. Review fund structures – Evaluate how permanent 199A deduction affects your entity choices 2. Assess REIT strategies – Consider whether REIT or SubREIT structures offer advantages 3. Update tax projections – Work with your CPA to model after-tax returns under the new permanent framework 4. Monitor technical corrections – Stay informed as implementation guidance develops
Planning Considerations
With the legislative uncertainty resolved, private lenders can plan with greater confidence. Key considerations include:
- Entity structure optimization – Pass-through versus corporate structures
- REIT conversion timing – For funds that could benefit from REIT treatment
- Investor communications – Updated return projections reflecting permanent tax treatment
Looking Ahead
The permanence of the Section 199A deduction removes a significant planning variable. Combined with the increased TRS asset limit (from 20% to 25% of REIT assets under OBBA), private lending funds have more flexibility than ever to optimize their structures.
However, regulatory implementation will continue to evolve. Staying informed on IRS guidance and technical corrections is essential for maximizing the benefits these provisions offer.
How Geraci LLP Can Help
Navigating the intersection of tax law and fund structuring requires experienced counsel. The Corporate and Securities team at Geraci LLP works with private lending funds to structure entities, optimize tax treatment, and ensure compliance with evolving regulations.
Contact our team to discuss how these legislative developments affect your fund structure, investment strategy, or operating entity.
